Big stake in wetlands case

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Landowners with so much as a puddle on their property should prepare for a showdown: Tomorrow the U.S. Supreme Court is going to hear two cases that might settle once and for all whether the 1970 Clean Water Act allows federal bureaucrats to regulate any wetland anywhere -- as they are effectively claiming -- or if there are some constitutional limits to their reach.

No doubt the bureaucrats will rattle off a litany of supposed environmental benefits to justify their ever-extending tentacles to the court. But what the justices won't hear from them is the cost to the economy.

The more egregious of the two cases involves John Rapanos, a pugnacious developer, who has become something of a cause celeb among property rights advocates. Federal bureaucrats began harassing him 20 years ago when he moved some dirt on his property without first obtaining a wetland permit.

Despite repeated lawsuits, he refused to cave in to their demands on grounds that their jurisdiction ended 20 miles away from his property -- where the nearest navigable waters were located. What's more, apart from two little wet spots that he was not planning to touch, his property was bone dry, thanks to its sandy soil.

Indeed, if he needs a federal permit, then potentially every property owner housing the smallest pond or puddle needs one. (It costs on average $300,000 to obtain this permit). This surely can't be the intention of the Clean Water Act, he argues. But if it is, Mr. Rapanos maintains, then the act itself violates the Constitution's Commerce Clause, which limits Uncle Sam's reach only to areas abutting navigable waters.

Setting aside the serious constitutional issues involved, what are the economic costs of such federal mandates?

Existing federal wetland regulations already cover 111.5 million acres of land -- an area that is bigger than the state of California. According to the United States Department of Agriculture, if the government were to compensate landowners (which, of course, it doesn't) for the development potential they have lost or stand to lose on just this land, it would have to cough up $162.6 billion.

This is equal to the combined 2005 profits of the top 15 Fortune 500 companies. It is also more than three times the value of the total exports of India's information technology industry, much reviled in recent years for "stealing" American jobs due to outsourcing.

It is not possible to wipe out this kind of value and not have ripple effects throughout the economy.

The most direct effect is on housing prices, notes Harvard University economist Edward Glaeser. In a study released last month, he found that housing prices in the Greater Boston area have doubled in the last 25 years -- in a large part because the environmental regulations imposed by area cities restricting permits for new homes at a time when housing demand was exploding. Wetland regulations alone, the study found, contributed to a 10 percent drop in new construction in the area.

But new home buyers are not the only ones who feel the pinch of rising prices. Businesses too get caught in the housing affordability crisis because they are forced to pay higher wages. "There is very strong evidence that few things are as strongly correlated to rising housing prices and wage increases as environmental laws," Mr. Glaeser maintains.

Nor does Mr. Glaeser buy the claim that wetlands produce other offsetting economic benefits. If they did, environmentalists would not be resisting attempts to tie new regulations to a cost-benefit analysis.

But if the economic benefits of wetland laws are slim, their environmental advantages are far from clear-cut either.

Apart from habitat or ecosystem protection, the main environmental benefit of wetlands is that they offer a natural filtering mechanism to purify polluted runoffs into lakes and rivers. But there are far cheaper ways of maintaining water quality -- such as growing fields with especially absorbent vegetation -- that don't require restricting development. "Restricting development is the most expensive filtering system devised by man," Mr. Glaeser remarks.

If Mexico were to demand California back from the United States, every American would be up in arms. But Mr. Rapanos alone is standing up to federal bureaucrats attempting an even bigger land grab whose only certain effect would be that it would shrink our economy. The Supreme Court ought not to allow that to happen.

Shikha Dalmia is a senior analyst and Leonard Gilroy is a policy analyst at the Reason Foundation.