Establishing a Framework for Environmental Contracts in a Democracy

Jean O. Melious

Jean Melious is an Associate Professor at Huxley College of the Environment, Western Washington University, Bellingham, Washington. She received a B.A. from St. Lawrence University, an M. Phil. degree in Urban Design and Regional Planning from the University of Edinburgh, and a J.D. degree from Harvard Law School. She has 20 years experience in land use and environmental law.

[33 ELR 10466]

To those who have wearied of an environmental regulatory system that manages to combine sluggish bureaucracy with partisan rancor—and the list of the disenchanted appears to include just about everybody involved in the environmental field—contracts may seem to provide an attractive alternative. Because contracts are flexible, collaborative, and enforceable, they offer an opportunity to bypass litigation while addressing the failures of command-and-control regulation. Why, then, are they so little used?

Odd as it may seem in light of the vast quantity of environmental law that engulfs us, the answer may be that, with rare exceptions, the substance of environmental law has not evolved to the point at which contracts can be useful. The paradox of environmental contracts is that they depend for their existence upon the very institutions that they are intended to replace: statutes, regulation, and litigation, which provide the substantive and procedural framework in which contracts can operate effectively. Rather than reducing the need for black-letter law, contracts require explicit statutory authorization and a clearly stated legal purpose in order to function within our system. Standards and explicit authorization are rare, however, in a system built around balancing needs and taking into account the interests of all of the parties. Only to the extent that statutes, regulations, and case law establish clear policy preferences can contracts do what they are supposed to do: allow parties to make beneficial trades, taking into account the interests of all of the parties.

The prominence of litigation over environmental issues also undoubtedly impedes the more widespread use of contracts because the courts offer a more attractive dispute resolution forum for some parties. It does not follow, however, that the role of litigation should be diminished in order to make environmental contracts more prevalent. In fact, courts, rather than legislatures, often articulate the clear legal principles and preferences that are largely lacking in statutory and regulatory law and that are needed to provide a framework for contract negotiations. Furthermore, without broad access to the courts, the possible exclusion of parties without a direct interest in contract negotiations would present a real concern in a democratic system. Litigation helps to ensure that the larger public, with its broad-based concerns over the externalities of development and long-term interests in environmental stewardship, will continue to influence the decisions that shape the environment.

An examination of law, politics, and practice indicates that environmental contracts can be a useful tool when the following elements are present: a strong legal statement of the goals to be addressed by the contract; statutory authorization to contract; a regulatory process of sufficient scope to create the possibility of mutually beneficial trades between public and private parties; restrictions on the ability of both the government's and private parties' ability to achieve their goals by other means; and a process that includes public review and public lawsuits to enforce the underlying values intended to be addressed by the contracts. The role of these elements is explored below.

Why Environmental Contracts Need a Strong Legal Framework

The Effect of Zero Sum Gain Disputes and the Litigation Best Alternative to a Negotiated Agreement

"Why do environmentalists always back out of negotiations right when it appears that the parties are finally going to reach an agreement?" This question arises every year, without fail, in a seminar on environmental dispute resolution that I organize for Washington State's Agriculture and Forestry Leadership Program. Sometimes it is raised by a Weyerhaeuser executive, sometimes by a small timber owner, sometimes by a state agency official. I have heard environmental lawyers ask the same question.

Assuming that there is a kernel of truth to the allegation that environmental groups have a tendency to back out of negotiations, there may be several possible explanations. One response, to this particular question and to the broader issue of why environmental contracts are not used more widely, is simple bloody-mindedness. This view has quite a few adherents in practice and in academics. In simplified form, the academic analysis developed by some faculty of business and management schools proceeds along the following lines. Stakeholders mistakenly identify environmental disputes as "fixed pies," or zero sum gain disputes, when in fact environmental issues always involve the opportunity for "expanding the pie" through mutually beneficial trade offs.¹ Parties cannot and will not view disputes in this light, however, because: (1) their egocentric world views make them overestimate the distinctiveness of their own interests, investing these interests with a value that some authors have dubbed "pseudosacred"²; and (2) disputants [33 ELR 10467] mimic the win-lose orientation of the legal system,³ acting as "intuitive lawyers" who "dismiss[] information that is inconsistent with their predispositions" and ignore conflicting evidence if it does not support a preconceived conclusion.⁴ Rather than promoting a contract-oriented, collaborative model, this behavior ensures the persistence of the old, adversarial, litigation-oriented command-and-control mode.

Those who have been involved in contentious environmental disputes (on any side) may conclude that this description clearly applies—to their opponents. As an explanation of root causes, however, it raises its own set of questions. Can everyone involved in environmental disputes really be this dysfunctional (and, if so, how do they manage to run successful businesses, head agencies, and nonprofits)? Do disputants really ignore salient evidence because they believe that ignoring the other sides' arguments will help them to win their points? (Perhaps such behavior should be described as "intuitive incompetent lawyering.") Is it really possible that stakeholders in environmental issues are so uniquely simple minded, or close minded, that they cannot see the existence of broader issues and perspectives?

If, on the other hand, it is true that the simplest solution to any problem is likely to be correct, perhaps it might be worthwhile to consider whether people behave as if the pie were "fixed" because it often is, in fact, fixed. On the ground, as most people experience them, environmental conflicts may involve zero sum gain situations, or fixed pies. On a short-term, individualized basis, in fact, such outcomes should not be unexpected, even in theory. Five acres in the middle of a rural county is turned into a subdivision or it is not. If it is developed, it is lost to agriculture forever. A retirement home may be built on the shores of a lake within the lifetime of the owner or it may not. If it is not, the individual landowner's dream is lost forever. When a trade to maximize value is not feasible within relevant geographical, time, and economic constraints, a zero sum gain perspective may be inevitable.

Even on a larger scale, when benefit-maximizing trades are possible, there is likely to be an irreducible zero sum gain dispute at the core of the parties' interactions. The core of most environmental issues is the conflict between immediate economic benefits to identifiable individuals and long-term, diffuse environmental benefits that are difficult to measure on an economic scale.⁵ For example, logging companies and environmentalists may both recognize that a logging dispute allows for trade offs that limit harvests to certain areas or that require certain trees to remain standing. The dispute may nonetheless be bitter and polarized; such a benefit-maximizing solution does not conform either to the logging company's distinct economic interest in profit maximization within the relevant corporate time horizon or to the environmentalists' interests in preserving the forest ecosystem. For both parties, a win would be better than a deal because their underlying interests are genuinely incompatible.

Agencies simply cannot be expected to negotiate successfully without a clear statement of which value—long-term, short-term, economic, or environmental—they are expected to implement. Experience with vague standards such as "multiple use" has already demonstrated the difficulties that an unclear mandate creates for agencies. Charged with representing the "public interest" (which public? which interest?), they simply become drawn into partisan disputes, with no foundational goal or principle to tell them what "the public" really wants. "Ecosystem management" seems susceptible to the same problem; the U.S. Forest Service, for example, has described it as "an ecological approach to natural resource management to assure productive, healthy ecosystems by blending social, economic, physical, and biological needs and values,"⁶ a description that provides little instruction for the negotiator in the field. Nor can this "soft" definition be more clearly defined by reference to legislation or regulation. To date, no federal statute calls for or defines ecosystem management—except abroad, when we insist that countries that desire to implement debt-for-nature swaps⁷ or reduce their debt⁸ must practice it. The five sections of the Code of Federal Regulations that mention ecosystem management merely exhort federal agencies to enter into partnerships with others who may be involved in such efforts.⁹ While aspirations to protect the environment and to make everybody happy are politically palatable, they do not provide a sound basis for contract negotiation because they require the parties to negotiate the policy ends as well as the means.

Where the underlying conflict of values has been clearly resolved by law, however, contracts may help to fill the gap between legal dictate and implementation. For example, contracts are used to implement habitat conservation plans (HCPs) under the Endangered Species Act (ESA). These contracts must not "appreciably reduce the likelihood of the survival and recovery of the species in the wild."¹⁰ The ESA thus disposes of the underlying conflict in values by stating that the survival and recovery of the species in the wild is the goal. This leads plenty of issues to negotiate, including whether activities will in fact "appreciably reduce" species' survival prospects and how protective measures can best be implemented. The parties do not, however, have to determine whether the long-term survival of the species has any value when it creates a conflict with short-term economic needs. The statute has stated a values preference.

Contracts thus can fill a valuable need when the parties are in a position to negotiate over issues that do not focus on genuine zero sum gain concerns. This requires a framework that makes trades reasonably feasible within the relevant geographic and time scales and that removes the focus of the negotiation from the need to resolve underlying conflicts in values. The fact that contracts do not play a larger role in the [33 ELR 10468] environmental sphere may reflect the rarity of such situations. Environmental planning or regulation on a scale that encourages benefit-maximizing trade offs is still the exception, not the rule, and few environmental statutes express an absolute preference for environmental or economic values. Instead, they require the balancing of interests, which provides the parties with ample scope to argue over underlying values. Because the parties themselves cannot find a fair way to resolve values disputes, it is only logical to seek a neutral third party: the courts.

Without knowing the specifics of the situation, a logical response to the question of why "environmentalists back out" of negotiations is that they believe that they have a stronger litigation alternative. In dispute resolution jargon, this is known as their best alternative to a negotiated agreement (BATNA).¹¹ If parties believe that they can reach a better result than the negotiated deal through an alternative process, it is only rational that they will not sign on to the deal. This is not true solely of environmentalists, of course; it affects the reasoning of all of the parties and determines their willingness to enter into and complete negotiations.

To the extent that litigation offers benefits compared to contract negotiation, there is no reason for parties to negotiate. While it is common to bemoan the disadvantages of litigation, it is more fruitful to review its advantages. Such an examination reveals the extent to which litigation limits the scope of environmental contracts by providing benefits that make contracts less desirable. It can also identify ways to structure and pursue contract negotiations so that the litigation alternative is less desirable. In fact, the litigation alternative is critical to the use of environmental contracts because it strengthens the procedural and substantive framework necessary for contracts to function.

Potential advantages of litigation include broad access to the courts, addressing power imbalances, familiarity with established procedures, and the establishment of precedent. These factors, and their relationship (both positive and negative) to environmental contracts, are discussed below.

Broad Citizen Access to the Courts

The reason that the American system of environmental law is the envy of the world (from a plaintiff's perspective) is the broad access provided to the courts through citizens' suit provisions. One concern surrounding government contract negotiations is that they will exclude the public from the public's business. While permit procedures generally are accompanied by formal procedural requirements that allow public review and input, some fear that contract negotiations could result in "closed door sessions" that result in unscrutinized or undisclosed deals. Furthermore, regulatory contracts almost never explicitly provide third-party beneficiaries, such as environmental organizations, with the right to sue.¹²

In the context of land use regulation, which provides insights from decades of experience with the concepts of development agreements and contract zoning, Carol M. Rose has proposed that the legitimacy of land use deals should be evaluated by "whether the local body went through the steps of identifying disputants, exploring issues, and explaining results."¹³ There is no reason that the adoption of environmental contracts should not meet these criteria. In fact, to the extent that their terms are more detailed than permit conditions, contracts can increase disclosure and aid outside parties in monitoring obligations.

It is true that the terms of contracts need to be negotiated by those who will be bound by the terms because other parties cannot make enforceable commitments. This does not mean, however, that contracts should be secret or hidden. While contract negotiations, like most permit negotiations, may not be open to the public, contracts certainly can be made available for public review.

The existence of broad access to courts provides a strong response to concerns about the inability of third parties to sue to enforce the terms of a contract. If contract performance is linked to compliance with underlying statutory and regulatory standards, third parties can sue to enforce the statute even if they cannot sue directly to enforce the contract. For example, in the endangered species context, implementation agreements uniformly link performance of the contract to compliance with the underlying HCP. If the implementation agreement has been breached, it is difficult to imagine a situation in which the HCP would not have been violated. The ESA's citizen suit provision¹⁴ allows "any person" to bring suit against the responsible agency for failing to enforce the ESA, or against "any person" alleged to have violated the ESA. This provision allows third parties who are concerned about the preservation of habitat to sue to enforce the HCP, even if the implementation agreement itself is not subject to third-party litigation.

Addressing Power Imbalances

Litigation provides environmental groups with the opportunity to intervene in environmental disputes on an equal footing with private interests and the government. Once they have established standing, they are not treated as second-class citizens because their stake in the dispute may be less direct than that of other parties. If the subject of the negotiation involves fundamental conflicts in underlying values, the parties that perceive themselves as less powerful are likely to find it beneficial to bring in a neutral third party to settle the issue. Furthermore, as a tactical matter, litigation can change the balance of power because of the potential for delay. Whether or not environmental groups would win any action on the merits, the likelihood of significant delays provides leverage for settlement.

Contracts cannot eliminate, but may be able to reduce, the use of litigation as a power-equalizing, tactical alternative. To the extent that "outsiders" such as environmental groups perceive that they are unrepresented at the contract negotiating table, they will still revert to litigation to even the scales or delay the deal. If contracts genuinely provide public benefits that exceed the likely outcome of litigation, however, litigation should become a less attractive alternative. The fact that contracts may give governments the ability to obtain significant benefits from the private sector—even to the extent of superseding constitutional restrictions—is discussed further below.

[33 ELR 10469]

Familiarity With Established Procedures

In litigation, all parties are familiar with the venue, the process, and the powers of the decisionmaker. In negotiation processes, all of these issues may be up for grabs. In one Washington State watershed planning process, for example, the facilitators have noted that it took the parties three months to develop mutually acceptable ground rules.¹⁵ Yet for better or worse, the ground rules for litigation already exist. Furthermore, these ground rules also ensure an outcome, if not a speedy outcome. Negotiation processes may seem to participants to proceed indefinitely with no particular goal in site.

Because contracts constitute a defined end point, the establishment of obligations through contracts should help to overcome the concern that negotiation processes will not lead to discernible results. Because this end point is legally enforceable, contracts have an advantage over plans, which may take years to prepare and never be implemented. The contract format thus encourages the use of negotiation processes by providing a framework and a focus.

The Establishment of Precedent

Litigation can result in precedent that will affect the resolution of similar disputes in the future. Contracts only apply to the issues and areas subject to the contract. For parties with limited resources, this can be a significant disadvantage. If a similar expenditure of resources is required for a one-shot deal and a court decision that can bind future action, the one-shot deal may not appear worth the effort.

While the fact that litigation can "make law" and contracts do not may be a deterrent to contract negotiation on a case-by-case basis, it can be beneficial to the development of an overall framework in which environmental contracts can operate. In both of the examples of environmental contracts discussed below, courts were essential to the development of the framework in which the parties negotiate.¹⁶ In a pluralistic society with conflicting values, legal opinions are an important source of defined rules and clearly stated values. Even when legislative bodies are unable or unwilling to express a clear preference for economic or environmental values in the abstract, courts can do so within the narrower context of specific disputes. These decisions can narrow the parameters within which future contract negotiations can proceed.

Litigation thus affects the prospects for environmental contracts in numerous, sometimes conflicting, ways. Litigation provides an alternative to negotiated dispute resolution, but it can also help to satisfy both the substantive and procedural prerequisites to the formation of contracts. It can provide the substantive policy formulations that narrow the scope of contract negotiations to manageable dimensions, and it provides a process by which nonparties to the contract can ensure that underlying legal obligations are met. Litigation thus might be viewed as a necessary evil; it makes the decision as to whether to enter into contract negotiations more complex but it can make contracts easier to negotiate.

The litigation alternative is not the only complicating factor that parties need to consider in evaluating whether to enter into environmental contract negotiations. Nongovernmental parties also need to consider the identity of the parties at the table. A further obstacle to contract formation is that the status of one party, the government, is fundamentally different from that of the other parties.

All Contracting Parties Are Not Created Equal: Cutting Deals With the Sovereign

In almost all environmental negotiations, the government is a key party. The thought of the sovereign sitting around the negotiating table in its figurative shirt sleeves, putting its cards on the table on an equal basis with all of the other players, is a pleasingly democratic notion. It is not, however, accurate. Agencies acting on behalf of the sovereign do not contract on an equal basis with the other parties to an environmental dispute.

Agencies are both empowered and constricted by their relationship to the sovereign. One significant source of power is the government's power to change the underlying law. The doctrine that the government may not contract away its right to legislate in the future, if such legislation is needed to protect the public interest, is central to our common-law tradition.¹⁷ this means that even if the government has ostensibly surrendered certain rights or privileges in exchange for contractual benefits, it may subsequently attempt to reclaim those benefits by legislating in ways that make the contract illegal or that reduce the benefits conferred by contract. In colloquial terms, the government may try to have its cake and eat it too. When this occurs, the courts balance the obligations created through contracts against the government's right to take future legislative action to protect the public interest.

In a 1993 reclamation case, Madera Irrigation District v. Hancock,¹⁸ the U.S. Court of Appeals for the Ninth Circuit discussed the various interests that courts must balance in interpreting federal contracts:

[33 ELR 10470]

Congress can change federal policy, but it cannot write on a blank slate. The old policies deposit a moraine of contracts, conveyances, expectations],] and investments. Lives, families, businesses, and towns are built on the basis of the old policies. When Congress changes course, its flexibility is limited by those interests created under the old policies which enjoy legal protection. Fairness toward those who relied on continuation of past policies cuts toward protection. Flexibility, so that government can adapt to changing conditions and changing majority preferences, cuts against.¹⁹

These policy considerations, the court further observed, affected the court's analysis of the effect of subsequent legislation on contracts between an irrigation district and the Bureau of Reclamation:

Two general principles constrain our interpretation. First, we must "construe legislation in a constitutional manner 'if fairly possible.'" Second, we must construe a contract with the government to avoid, if possible, foreclosing the exercise of sovereign authority…. These two principles compel a construction somewhat more liberal toward the government than might be appropriate were the contract a purely private transaction. They enable it to change, not just execute past policies. But too liberal an interpretation of the residual sovereign power of the government to override its contractual commitments would eviscerate the government's power to bind itself to contracts. In addition to the moral offensiveness of allowing the government to break its promises, too liberal a construction would have the paradoxical consequence of weakening the sovereign power to implement policy. If the government's commitments need not be honored, then it can induce responses to policies only by cash or coercion.²⁰

The U.S. Supreme Court addressed the appropriate balance between government dependability and adaptability in United States v. Winstar Corp.,²¹ which reviewed the U.S. Congress' effort to eliminate subsidies to healthy savings and loan associations that agreed to bail out failed savings and loans. The subsidies were implemented through contracts and retracted by legislation. A plurality of the Supreme Court found that the contracts at issue were solely "risk-shifting agreements" that did not block the sovereign's exercise of power. It held that the government was liable for damages for breach of the original agreement.²²

Because of this holding and the Court's apparent support for the concept that "'the right to make binding obligations is a competence attaching to sovereignty,'" the decision could, in theory, provide security to parties entering into agreements with environmental agencies. Winstar only supports this conclusion, however, when contracts allow for, or at least do not explicitly exclude, money damages as a contractual remedy. The Winstar plurality reasoned that "a requirement to pay money supposes no surrender of sovereign power."²³ Conversely, remedies that would enjoin the government from applying regulations or that would require the government to take certain actions would block sovereign powers rather than merely shifting risks to the government.²⁴ As a result, contracts that can be enforced solely by specific performance would not be protected by Winstar.

As evidenced by federal wildlife agencies' stance in negotiating contracts under the ESA, environmental agencies are likely to resist the possibility of allowing for monetary damages in contracts. In the contracts that implement HCPs under the ESA, the wildlife agencies have insisted on "no monetary damages" provisions, which may render the contracts unenforceable in the event of a change in the underlying law.²⁵ The implications of the government's ability to renege on its deals relating to the adaptive management of habitat and ecosystems are discussed further below.

A second factor that affected the outcome in Winstar was the explicit statutory authority for the contracts at issue. This issue highlights the limitations that may face government agencies that wish to enter into contracts. Because agencies can only exercise the powers delegated to them by Congress, they must be able to establish that they have the authority to enter into contracts. Furthermore, courts have held that agencies that intend to surrender their authority to change the law in the future must state that intention in express terms. The Supreme Court in Winstar evaluated both the agency's organic statute, concluding that it "generally empowered [the agency] to make contracts,"²⁶ and the authority for the contracts at issue, which were specifically provided for by statute.²⁷ The Court concluded that the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation had "ample statutory authority" to make promises regarding regulatory capital "and to pay respondents' damages if that performance became impossible."²⁸

Environmental agencies were not conceived of as the type of agencies that would enter into contracts, and their organic statutes generally do not specify that they have the power to contract. Under Supreme Court precedent holding that agencies have the power to enter into contracts without statutory authority, however, this may not be a critical omission.²⁹ [33 ELR 10471] Enabling statutes also tend to include broad statements of authority; the U.S. Fish and Wildlife Service's (FWS') enabling statute, for example, states that it may "take any such steps as may be required for the development, management, conservation, and protection of fish and wildlife resources."³⁰ The agencies' underlying authority to enter into contracts thus may not prove problematic.

In order to establish "express delegation," however, the agencies also should be able to refer to statutory authority that authorizes them to make specific contractual promises. With a few exceptions, such as reclamation contracts,³¹ such authorization is generally lacking in the environmental field. This presents a real roadblock to the possibility of using contracts as an "end run" around the sluggish, difficult-to-reform system of laws and regulations. Ironically, in order to provide a legally sound alternative to statutes and regulations, contracts need to be authorized by statutes and regulations. The command-and-control system must cooperate in its own reform.

Contracts That Work: Increasing Private Sector Certainty in Return for Up-Front Benefits

Most private sector-oriented commentators focus on the advantages of contracts as a means to provide the private sector with flexibility. In fact, the primary attraction to the private sector of many of the environmental contracts entered into to date is their ability to provide certainty in the face of long-term uncertainty. It is often the government that can benefit the most from contractual flexibility, which allows agencies to respond to new information regarding the extent to which regulations and mitigation measures effectively address environmental concerns.

The private sector clearly can accommodate, and even flourish in the face of, a good deal of uncertainty. Complete uncertainty with respect to potential future expenditures and obligations, however, is anathema to land and business owners. Contracts can allow for enough give-and-take to allow such strong public polices to persist in the face of strong private sector opposition. They also allow the government to bargain for substantial up-front benefits in return for reduced uncertainty. The following sections discuss two situations in which contracts have memorialized such trades: implementation agreements for HCPs under the ESA, and statutorily authorized development agreements that provide for the early vesting of development rights in California.

Adaptive Management as a Contractual Term: Contracts Under the ESA

The principle of adaptive management reflects the fact that uncertainty is pervasive and unavoidable in environmental governance. When policies or regulations are adopted, or permits approved, the effects of these actions on ecosystems frequently are not predictable with any certainty. Therefore, such decisions involve an unavoidable risk of error. Over time, with additional knowledge, any environmental decision may be revealed as too weak, too stringent, or misconceived. Adaptive management is the ability to adapt policies and decisions as knowledge increases.

In order to achieve the goals of adaptive management, "policy institutions need both the capacity to assimilate new knowledge and the flexibility to respond to it appropriately. While the other conditions for adaptive management have proved challenging, this one is the hardest."³² It may be possible to implement adaptive management through a command-and-control system on a project-by-project basis, through permit revision and monitoring obligations. For larger areas, such as watersheds or major forested areas, however, flexible responses to changing circumstances may be more difficult to implement. Contracts, which have always had to deal with change (in prices, weather conditions, transportation costs, and myriad other factors), can build in the flexibility that agencies need in order to change course when necessary. Contracts can specify contingencies under which further activities would or would not take place. They can establish credits and penalties to help modify behavior and outcomes. They can specify site-specific or project-specific conditions under which further review and reevaluation would be required. They provide the government with a mechanism for changing policies and requirements; without such a mechanism, adaptive management is at best a hollow promise, at worst a license to postpone analysis indefinitely.

Governments are not the only parties whose modus operandi is affected by adaptive management. The risk of policy revisions also affects the value of private property and the feasibility of private income-producing activities. As one author has noted: "If all decisions are subject to revision, the risk of future restrictions hang over every activity and property,"³³ thereby reducing the security of private property.

While some proponents of environmental interests might argue that this is simply the price that everyone in society must pay for a sustainable system of development, it is unrealistic to ignore the value of certainty. Certainty has been explicitly valued by our legal and economic systems for hundreds of years. After all, it was Supreme Court Justice Louis D. Brandeis, known primarily for upholding social justice in the face of conflicting precedent, who stated that "in most matters it is more important that the applicable rule of law be settled than that it be settled right."³⁴ Certainty allows people [33 ELR 10472] and businesses to arrange to meet their goals in profit-maximizing ways that also comply with the law. Uncertainty is difficult to factor into long-term budgeting, and lenders dislike the possibility of potential environmental liability in unspecified amounts. Absolute adaptive management means absolute uncertainty, and it is not logical or reasonable to assume that absolute uncertainty will always be in society's best interest. When it is not, contracts can provide the necessary level of certainty.

This will not necessarily require absolute certainty. Private sector activities are required to adapt to many forms of risk. One such risk is that cumulative human activities will lead to environmental collapse. Where ecosystems are under significant stress, as demonstrated by indicators such as the presence of threatened and endangered species, it is not unreasonable to ask private property owners to accept the possibility that they may have to change course in their own, and the public, interest. Contracts are a reasonable means to provide sufficient certainty for private activities to proceed by specifying the types of new measures that may or may not be required, or the circumstances under which new measures may be required. Future liabilities thus can be limited but not excluded entirely.

This is, in fact, the framework for the implementation of adaptive management that has been created by the much-excoriated policy of providing "no surprises" assurances under the HCP provisions of the ESA. Some environmental groups have stated, for example, that the no surprises policy precludes adaptive management by "exempting the landowners from their duty to adapt, improve, and supplement their mitigation measures over time."³⁵ The regulatory and contractual structure of HCPs with no surprises assurances does not, however, support this perspective; the level of certainty provided by no surprises is much lower than would be provided by an "exemption" from change.

The no surprises policy must be understood within its ESA context. The heart of the ESA is § 9, which prohibits the "take"³⁶ of threatened or endangered species. Activities resulting in take are "unlawful for any person,"³⁷ including private property owners. This provides the agencies that implement the ESA—the FWS and the National Marine Fisheries Service (NMFS)—with a strong command-and-control hammer. In order to supplement this § 9 requirement, which forces a focus on species-by-species regulation, Congress amended the ESA in 1982 to include provisions allowing the preparation of HCPs.³⁸ This HCP amendment authorized the FWS to issue "incidental take permits" for otherwise prohibited takings of endangered species if the agency approves a conservation plan that minimizes and mitigates the taking.³⁹ HCPs were intended to be flexible enough to consider both listed and unlisted species over extended periods of time.⁴⁰

It was always anticipated that the HCP process would result in a trade off of long-term species benefits for restrictions of the future expenditures that could be required of property owners for endangered species protection.⁴¹ It was not until the no surprises policy was adopted in 1994, however, that this trade off was made explicit and official—and it was not until this trade off was made explicit that private parties agreed to enter into HCPs.⁴² The no surprises policy⁴³ states that, in the event of unforeseen circumstances not addressed by the HCP, permit holders cannot be required to contribute additional land or financial compensation for species mitigation.⁴⁴ If additional measures are required to protect a species, the government must undertake these activities at its own expense.⁴⁵ Assurances only apply to species listed on a permit that are adequately covered in the conservation plan, where the conservation plan is being properly implemented.⁴⁶ The duration of the assurances is the same as the length of the permit; although HCPs range from 7 months to 100 years to perpetuity, the median duration is 10 years.⁴⁷

The no surprises policy only applies to circumstances that were unforeseen at the time that the permit was issued. The FWS' and the NMFS' HCP Handbook states that unforeseen circumstances are not the same as "changed circumstances." Changed circumstances "are not uncommon during the course of an HCP and can reasonably be anticipated and planned for (e.g., the listing of new species, modifications in the project or activity as described in the original HCP, or modifications in the HCP's monitoring program)."⁴⁸ [33 ELR 10473] One possibility for addressing such "changed" circumstances, the HCP Handbook states, is to incorporate adaptive management measures in the HCP. "HCP planners should identify potential problems in advance and identify specific strategies or protocols in the HCP for dealing with them, so that adjustments can be made as necessary."⁴⁹

In a properly prepared HCP, therefore, the unforeseen circumstances that would trigger the no surprises rule are limited to changes that are so unpredictable that they could not even be included in a plan for adaptive management. If the FWS' contractual template is followed, negotiations over the scope of changed circumstances typically proceed from the assumption that a whole range of events, including fire and the introduction of invasive species, represent changed (rather than unforeseen) circumstances. HCPs must provide for these circumstances, despite the fact that neither the likelihood nor the impact of such events is predictable. This is hardly a wholesale exemption from further mitigation obligations.

The substantiality of the benefits to landowners and other private parties is reduced even further by the fact that these assurances might not even be enforceable. Regulatory assurances clearly are only assured for the duration of the regulation. A private party that enters into a 30-year HCP on the understanding that unforeseen circumstances will not trigger further liability is gambling on the hope that the regulation will be in effect for 30 years. In order to extend assurances beyond the life of the regulation, the parties to most large-scale HCPs enter into contracts, known as implementation agreements, with the agencies. These contracts are essential to the long-term security sought by the parties because they are the only available means to ensure that long-term assurances are, in fact, long term.

Even with a contract, however, nongovernmental parties cannot be assured of the benefit of their bargain. The current template for implementing agreements includes a provision that excludes the possibility of money damages for breach. As discussed above, contracts with the government that do not provide for money damages may allow the government to avoid enforcement. When faced with this issue, the ESA agencies have been unwilling to change the contract terms.⁵⁰

The evolution of the no surprises rule indicates that a very low level of certainty is needed to induce private parties to operate within a system of adaptive management—provided that the underlying legal obligation that constrains the private parties' actions is sufficiently clear and stringent. Under these circumstances, potentially unenforceable promises to limit liability in the event of unforeseen circumstances may provide sufficient certainty. Agencies thus have leverage to require extensive up-front mitigation and planning efforts in return for quite a low level of protection against future change.

This has not been the perception of the rule in most of the environmental community, however, which has stridently opposed the implementation of no surprises as a "giveaway" to private interests. Measured against an imaginary baseline of complete, perfectly implemented species protection and nonexistent private sector rights and powers, this critique would be correct. That is not, however, the world in which we live. The ESA has always involved an uneasy accommodation of species' needs and private property rights, with or without the no surprises policy. Private sector interests claim that the no surprises rule leads to better species protection because the knowledge that they will not be "on the hook" for indefinite costs in the future frees up current resources for species protection, allowing them to provide additional up-front benefits.⁵¹ Rather than focusing on the ways in which agencies could use this leverage to extract these species benefits, however, many environmental groups have simply rejected this claim and opposed the rule. This reaction is not based on evidence. While published studies⁵² indicate that many HCPs are imperfect, and that some are more imperfect than others, there is no research that supports the conclusion that HCPs with no surprises assurances are better or worse than others—or, more to the point, that HCPs with no surprises assurances results in less species protection than the private sector's legal alternatives to the preparation of an HCP.⁵³

Rather than battling the no surprises assurances, those concerned with environmental protection might focus on using the leverage provided by the value that private parties place on certainty. The potential scope of this leverage is discussed in the following section.

Development Agreements and the Trade Off Between Certainty and Public Benefits

Contracts known as "development agreements," authorized by statute in California,⁵⁴ are another example of the use of contracts to provide certainty to private interests in the face of unpredictable future change. Because of California's late vesting rule,⁵⁵ development projects with long time horizons may face substantial regulatory uncertainty. The right to develop a project in accordance with existing rules and regulations ordinarily does not vest in California until the project proponent has obtained a building permit and has [33 ELR 10474] "performed substantial work and incurred substantial liabilities in good faith reliance" on the permit.⁵⁶ When developments are staged over long periods, it may be years before building permits are obtained. In the meantime, developers fear that the local government may have changed planning or zoning laws to prevent the development in accordance with the original approval or to impose onerous new requirements.

By contract, however, local governments may provide early vesting to projects under terms that are partially dictated by statute and partially the product of negotiation. The development agreement statute allows cities and counties to enter into development agreements with any property owner. Development agreements must specify "the duration of the agreement, the permitted uses of the property, the density or intensity of use, the maximum height and size of proposed buildings, and provisions for reservation or dedication of land for public purposes" and may include other provisions relating to the terms of subsequent discretionary approvals.⁵⁷ The development is then governed by the regulations governing permitted uses of the land, density, and design, improvement, and construction standards and specifications in force at the time of execution of the agreement.⁵⁸

California courts have noted that development agreements may be used to obtain public benefits, such as funding and land dedication, which the local government might not otherwise be able to obtain.⁵⁹ In fact, contracts may provide a means for governments to overcome the restrictions on exactions and dedications imposed by "takings" law under the Fifth Amendment to the U.S. Constitution.⁶⁰ Based on legal precedent in the land use context, some commentators have suggested that contracts should not be subject to constitutional limits imposed on other kinds of exactions, at least to the extent that such contracts are voluntary.⁶¹ This conclusion is based on the "bargaining theory of consideration," which reasons that "it is of no constitutional significance that a developer accedes to otherwise unlawful exactions" so long as the bargaining process is voluntary.⁶²

Development agreements are a contractual reaction to a high level of governmental regulatory control. It has not been determined definitively whether such contracts will be viewed as voluntary or as coerced. Even ostensibly "voluntary" arrangements may in fact be subject to "administrative arm-twisting," defined by one author as "a threat by an agency to impose a sanction or withhold a benefit in hopes of encouraging 'voluntary' compliance with a request that the agency could not impose directly on a regulated entity."⁶³ To the extent that contracts are found to be voluntary, they offer governments the opportunity to bargain for substantial public benefits. Governments may even be able to overcome constitutional limits on the benefits that can be obtained by private parties, if they are willing to test the full potential of their leverage.

Conclusion: A Practical Framework for Environmental Contracts

Environmental contracts in practice appear to operate very differently from environmental contracts in theory:

In theory, contracts should provide needed flexibility to private-sector interests chafing under the rigid constraints of command-and-control rules. In practice, environmental contracts have been used to provide certainty to private sector parties in situations that would otherwise allow governments to operate with exceptional flexibility.

In theory, contracts should offer a means by which parties can reform environmental policy more quickly and simply than by attempting to revise the command-and-control system. In practice, the validity of environmental contracts is highly dependent on the development of an appropriate statutory framework, including statutory authorization.

As the theoretical benefits of environmental contracts are refined by the millstone of practical legal constraints, the possible role of contracts as a shortcut to a new environmental order should be reevaluated. Contracts may well have a role in reinventing environmental law, but they will not be a shortcut to reform. The nature of government as sovereign and the constraints on government as dealmaker combine to make reform through contract at least as difficult as reform [33 ELR 10475] through command and control. Enforceable contracts will be most likely to result from statutory schemes that specify the goals and parameters of the deals that governments are allowed to make. Efforts at shortcuts will result in bad deals because the resultant contracts may be unenforceable. Parties that negotiate with government will discount the value of the government's promises if they are not reliable.

In spite of all of these obstacles, however, environmental contracts have found at least one niche: the exchange of long-term certainty (or at least reduced uncertainty) to private interests in return for specified up-front benefits to the public. Opportunities for such contracts, including development agreements in California and ESA contracts that implement HCPs, arise when legal constraints on the private sector are extraordinarily stringent. It appears that contracts thrive where there is more, not less, command-and-control regulation. Consequently, those who view contracts as a more business-friendly, market-oriented approach to environmental regulation might be careful. They might obtain their wish for a more contract-oriented approach and find that it is the antithesis of their desire for decreased bureaucratic control.

Those who view contracts as a ruse to bypass the democratic process in favor of economic interests might also reconsider. As long as statutes and regulations incorporate the underlying goals of contracts, and litigation offers a means to challenge the achievement of these goals, negative effects on democracy should not occur. Rather, contracts can provide a means to exercise the leverage provided by the private sector's high valuation of increased long-term certainty. Without surrendering the environmental community's long-term values, it can negotiate limited constraints on private liability for future effects while ensuring a higher degree of protection for current resources. This ounce of prevention should actually help to reduce future unfortunate surprises, resulting in mutually beneficial results.

The environmental regulatory system surely can accommodate this level of give-and-take. The contractual path from here to there, from regulations to contract, from adversarial environmental disputes to collaborative agreements, runs through the same old morass of human nature and legal complexity that got us into our current environmental fix. It is possible to wade through this swamp, but it will require some detailed attention to the system that supports—or derails—alternative modes of environmental regulation. In the physical world, the technical skills of engineers translate big ideas and grandiose plans into tangible form. In the policy world, lawyers will need to be the engineers of ecosystem management, finding ways to use our cumbersome legal and political systems to meet the needs of the environment. Attention to the appropriate use of regulation and litigation to support environmental contracts is one service that lawyers can provide to help reinvent environmental law.

1. See, e.g., Andrew J. Hoffman et al., Cognitive and Institutional Barriers to New Forms of Environmental Cooperation on Environmental Protection: Insights From Project XL and Habitat Conservation Plans, 45 AM. BEHAV. SCIENTIST 820, 830-31 (2002).

2. Max A. Bazerman et al., The Human Mind as a Barrier to Wiser Environmental Agreements, 42 AM. BEHAV. SCIENTIST 1277, 1287 (1999).

3. Id. at 1285.

4. Mark N. Lubell, Cognitive Conflict and Consensus Building in the National Estuary Program, 44 AM. BEHAV. SCIENTIST 629, 642 (2000).

5. See JOHN KENNETH GALBRAITH, THE CULTURE OF CONTENTMENT 20-21 (1992) (discussing acid rain: "The cost of corrective measures to the electric power plants and their consumers will be immediate and specific, while the longer-term conservation reward will, in contrast, be diffuse, uncertain and debatable as to specific incidence.").

6. U.S. Forest Service, U.S. Department of Agriculture, People's Glossary of Ecosystem Management Terms, at http://www.fs.fed.us/land/emterms.html (last visited Apr. 9, 2003).

7. 22 U.S.C. §§ 262p-4i, 2283.

8. 2 U.S.C.S. § 2431g.

9. See 32 C.F.R. §§ 651.4, 651.14 (2002) (U.S. Department of Defense), 40 C.F.R. §§ 35.130, 35.135, 35.530 (2002) (U.S. Environmental Protection Agency Partnership Performance Grants).

10. 16 U.S.C. § 1539(a)(2)(B)(iv), ELR STAT. ESA § 10(a)(2)(B)(iv).

11. ROGER FISHER ET AL., GETTING TO YES: NEGOTIATING AGREEMENT WITHOUT GIVING IN 100 (2d ed. 1991).

12. See, e.g., Jody Freeman, The Contracting State, 28 FLA. ST. U. L. REV. 155, 176 (2000).

13. Carol M. Rose, Planning and Dealing: Piecemeal Land Controls as a Problem of Local Legitimacy, 71 CAL. L. REV. 837,900 (1983).

14. 16 U.S.C. § 1540(g), ELR STAT. ESA § 11(g).

15. Personal communication with Rob Kelly, co-facilitator for Watershed Resource Inventory Area 1, Whatcom County, Washington (Nov. 20, 2002).

16. In the example of contracts to implement HCPs under the ESA, the U.S. Supreme Court upheld the broad interpretation of "harm" to species as including habitat degradation that could kill species. Babbitt v. Sweet Home Chapter of Communities for a Great Or., 515 U.S. 687, 692, 25 ELR 21194, 21195 (1995). If this definition were in question, private parties might not feel the same compulsion to negotiate. In the example of development agreements, the California Supreme Court upheld and defined a "late vesting" rule that is stringent enough, and provides enough future uncertainty, to motivate property owners and developers to negotiate for earlier vesting. Avco Community Developers, Inc. v. South Coast Reg'l Comm'n, 17 Cal. 3d 785, 791 (1976).

17. This constraint on government contracts is not absolute, and the extent to which it applies to any given contractual relationship depends on the nature of the consideration granted by the agency and specifics of statutory authority. For an overview of the origins and operation of this doctrine, see Gillian K. Hadfield, Of Sovereignty and Contract: Damages for Breach of Contract by Government, 8 S. CAL. INTERDISC. L.J. 467, 467-75 (1999). For an expanded discussion of the effects of this doctrine on contracts under the ESA, see Jean O. Melious & Robert D. Thornton, Contractual Ecosystem Management Under the Endangered Species Act: Can Federal Agencies Make Enforceable Commitments?, 26 ECOLOGY L.Q. 489, 504-42 (1999). For a discussion of this doctrine as it affects state and local police power, see Judith Welch Wegner, Moving Toward the Bargaining Table: Contract Zoning, Development Agreements, and the Theoretical Foundations of Government Land Use Deals, 65 N.C. L. REV. 957, 971-75 (1987).

18. 985 F.2d 1397, 23 ELR 20579 (9th Cir. 1993).

19. Id. at 1400, 23 ELR at 20579-80.

20. Id. at 1401, 23 ELR at 20580 (citations omitted).

21. 518 U.S. 839 (1996).

22. Id. at 843. Although the Supreme Court found the government liable by a 7-2 majority, the decision is fractured. Justices John Paul Stevens and Stephen G. Breyer joined Justice David H. Souter's full plurality opinion, which concluded, inter alia, that the unmistakability doctrine did not apply to the contracts at issue because they were merely risk-shifting agreements. The unmistakability doctrine provides that waivers of sovereign immunity must appear in unmistakable form. Justice Sandra Day O'Connor joined the plurality opinion with the exception of two sections addressing the issue of whether the statute that attempted to invalidate the contractual provisions at issue constituted a "public and general" act of the sovereign. Id. at 843-909. Justice Breyer wrote a concurring opinion criticizing the unmistakability doctrine. Id. at 910-18. Justices Antonin Scalia, Anthony M. Kennedy, and Clarence Thomas, who concurred only in the result, argued that the unmistakability doctrine did apply but that the contracts at issue met its requirements. Id. at 918-25. Chief Justice William H. Rehnquist and Justice Ruth Bader Ginsburg, in dissent, concluded that the thrifts did not meet the unmistakability doctrine. Id. at 924-37. Chief Justice Rehnquist, in a section of the dissent in which Justice Ginsburg did not join, also concluded that the sovereign acts doctrine was not satisfied. Id. at 931-35. The difficulties involved in merely trying to describe the outcome of the case are a harbinger of the challenges to be met in deciphering the underlying issue: when, and to what extent, federal agencies can be bound by their contracts in the face of subsequent contradictory legislation.

23. Id. at 894.

24. Id. at 881.

25. See Melious & Thomton, supra note 17, at 522-42.

26. 518 U.S. at 890.

27. Id. at 891.

28. Id. at 889-90.

29. Agencies of "the United States can, without the authority of any statute, make a valid contract." Jessup v. United States, 106 U.S. 147, 152 (1882); accord Moses v. United States, 166 U.S. 571, 585-87 (1897). The federal executive branch may "within the sphere of the constitutional powers confided to it … enter into contracts" so long as those contracts are "not prohibited by law, and [are] appropriate to the just exercise of the executive's other statutory or constitutional powers." United States v. Tingey, 30 U.S. (5 Pet.) 115, 128 (1831).

30. 16 U.S.C. § 742(f).

31. See 43 U.S.C. § 511 (authorizes the U.S. Department of the Interior to enter into contracts with irrigation districts). Specific authorization for contracts to implement HCPs under the ESA is contained in a final rule. See U.S. FWS, Habitat Conservation Plan Assurances ("No Surprises") Rule, 63 Fed. Reg. 8859, 8860 (Feb. 23, 1998). The rule is supported by statutory authorization that provides for "such other measures" as are "necessary and appropriate." 16 U.S.C. § 1539(a)(2)(A)(iv), ELR STAT. ESA § 10(a)(2)(A)(iv). Such rule-based authorization, which has not been challenged in court, makes the increased use of contracts more likely than if the underlying statute itself has to be amended to provide for contracts.

32. Edward A. Parson, Environmental Trends and Environmental Governance in Canada, 26 CANADIAN PUB. POL'Y, SPECIAL SUPPLEMENT ON THE TRENDS PROJECT S123 (2000).

33. Id. at S129.

34. Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 406 (1932) (Justice Louis D. Brandeis, dissenting). It is only fair to note that Justice Brandeis made this famous comment in the course of arguing that precedent should be overruled, supporting his argument with the principle of legal adaptive management: "The court bows to the lessons of experience and the force of better reasoning, recognizing that the process of trial and error, so fruitful in the physical sciences, is appropriate also in the judicial function." Id. at 407-08.

35. Western Ancient Forest Campaign et al., Giving It All Away: The "No Surprises" Policy, HCPs, and the Future of Northwest Forests, Endangered Species, and Public Policy, at 5 (Dec. 15, 1997), at http://www.americanlands.org/forestweb/hcpinfo.htm (last visited Mar. 3, 2003).

36. "Take" means to "harass, harm, pursue, hunt, shoot, wound, kill, trap, capture],] or collect …." 16 U.S.C. § 1532(18), ELR STAT. ESA § 3(18). "Harm" means "an act which actually kills or injures wildlife. Such act may include significant habitat modifications where it actually kills or injures wildlife." 50 C.F.R. § 17.3 (1998).

37. 16 U.S.C. § 1538(a), ELR STAT. ESA § 9(a).

38. Endangered Species Act Amendments of 1982, Pub. L. No. 97-304, § 6(1)(a)(1)(B). 96 Stat. 1411, 1422 (codified at 16 U.S.C. § 1539(a)(2)(A), ELR STAT. ESA § 10(a)(2)(A)).

39. 16 U.S.C. § 1539(a)(2)(B), ELR STAT. ESA § 10(a)(2)(B).

40. H.R. REP. No. 97-835, at 30 (1982), reprinted in 1982 U.S.C.C.A.N. 2807, 2830.

41. HCPs should include both "long-term commitments regarding the conservation of … species and long-term assurances to the proponent of the conservation plan that the terms of the plan will be adhered to and that further mitigation requirements will only be imposed in accordance with the terms of the plan." Id. (emphasis added).

42. Only 14 HCPs had been signed by 1993. Babbitt, Daley to Announce Private Land Conservation Programs, U.S. NEWSWIRE, June 5, 1997. Between 1993 and 1997, in contrast, 200 HCPs were developed. DIVISION OF ENDANGERED SPECIES, U.S. FWS, ENDANGERED SPECIES GENERAL STATISTICS (1998) (on file with author). By December 12, 2002, 414 HCPs had been approved, covering approximately 30 million acres. U.S. FWS, Endangered Species Habitat Conservation Planning, at http://endangered.fws.gov/hcp/ (last visited Apr. 10, 2003).

43. 63 Fed. Reg. at 8859. The final rule, which was effective on March 25, 1998, codifies (with certain changes) assurances first provided by the "No Surprises" policy issued in 1994 by the FWS and the NMFS, and contained in the joint FWS and NMFS handbook referred to infra note 48. 63 Fed. Reg. at 8859.

44. 63 Fed. Reg. at 8859.

45. Id. at 8871 (codified at 50 C.F.R. § 17.22(b)(6) for FWS; 50 C.F.R. § 222.307(h) for the NMFS).

46. Id. at 8871, 8872 (codified at 50 C.F.R. §§ 17.22(b)(5), 17.32(b)(5), for the FWS; 50 C.F.R. § 222.307(g) for the NMFS).

47. THE NATURAL HERITAGE INSTITUTE, COMPENDIUM OF EMPIRICAL REVIEWS AND SCHOLARLY ANALYSIS OF THE EXPERIENCE WITH HABITAT CONSERVATION PLANNING UNDER SECTION 10 OF THE ENDANGERED SPECIES ACT 7 n.45 (1998).

48. U.S. FWS & NMFS, ENDANGERED SPECIES: HABITAT CONSERVATION PLANNING HANDBOOK 3-28 (1996), available at http://endangered.fws.gov/hcp/hcpbook.html (last visited Apr. 10, 2003) [hereinafter HCP HANDBOOK].

49. Id. The HCP Handbook Addendum, or "five-point policy guidance," further describes the role of adaptive management within the context of "No Surprises" assurances. U.S. FWS, Notice of Availability of a Final Addendum to the Handbook for Habitat Conservation Planning and Incidental Take Permitting Process, 65 Fed. Reg. 35241, 35243, 35252-53 (June 1, 2000).

50. See Melious & Thornton, supra note 17, at 523 n.159.

51. This is one of the formal justifications for the adoption of the rule. See U.S. FWS, No Surprises Policy, Proposed Rule, 62 Fed. Reg. 29091, 29092 (May 29, 1997); 63 Fed. Reg. at 8860 (quoting H.R. REP. No. 97-835, at 31 (1982), reprinted in 1982 U.S.C.C.A.N. 2807, 2830).

52. PETER KAREIVA ET AL., USING SCIENCE IN HABITAT CONSERVATION PLANS (1999), available at http://www.nceas.ucsb.edu/nceasweb/projects/97KAREI2/hcp-1999-01-14.pdf (last visited Apr. 10, 2003).

53. The first such alternative consists of a permit process under ESA § 7, which applies when federal agencies undertake a project or when a private project involves federal approvals or funding. The second alternative is "self-permitting," in which private parties attempt to engage in activities in ways that will not invoke the ESA's prohibition on the "take" of species.

54. CAL. GOV'T CODE §§ 65864-65869.5 (Deering 2003).

55. Late vesting apparently is the rule in a majority of states, with approximately 30 states following a vesting formulation similar to California's rule. John J. Delaney, Vesting Verities and the Development Chronology: A Gaping Disconnect?, 3 WASH. U.J.L. & POL'Y 603, 607-08 (2000).

56. Avco Community Developers, Inc. v. South Coast Reg'l Comm'n, 17 Cal. 3d 785, 791 (1976).

57. CAL. GOV'T CODE § 65865.2.

58. Id. § 65866.

59. There has been little litigation over development agreements, and the courts have assumed, without specifically holding, that the agreements provide the local governments with leverage to obtain public benefits. In Santa Margarita Area Residents Together v. San Luis Obispo County Bd. of Supervisors, the court observed that "one of the purposes of development agreements is to obtain benefits for the public …." 84 Cal. App. 4th 221, 229 (2000). In Hermosa Beach Stop Oil Coalition v. City of Hermosa Beach, the court found that a city's imposition of an oil drilling ban was a valid police power action and did not unconstitutionally impair the contract rights of a company with an oil lease. 86 Cal. App. 4th 534, 558 (2001). The court reasoned that, if the lessee had desired to protect itself from such subsequent regulatory changes, it could have entered into a development agreement. The court then observed that "of course, it is likely that the city would have demanded additional consideration from [the lessee] for … a separate development agreement. Having at least implicitly decided to forego such protection against future regulatory change, [the lessee] must accept the consequences of its judgment to do so." Id. at 558.

60. See Nollan v. California Coastal Comm'n, 483 U.S. 825, 17 ELR 20918 (1987); Dolan v. City of Tigard, 512 U.S. 374, 24 ELR 21083 (1994).

61. See, e.g., David L. Callies & Julie A. Tappendorf, Unconstitutional Land Development Conditions and the Development Agreement Solution: Bargaining for Public Facilities After Nollan and Dolan, 51 CASE W. RES. L. REV. 663, 692 (2001); Daniel J. Curtin Jr., Property Development Agreements in the Land Use Arena in California, American Planning Association National Planning Conference (2001), at 10; Patricia G. Hammes, Development Agreements: The Intersection of Real Estate Finance and Land Use Controls, 23 U. BALT. L. REV. 119, 158-59 (1993).

62. Brad K. Schwartz, Development Agreements: Contracting for Vested Rights, 28 B.C. ENVTL. AFF. L. REV. 719, 750-51 (2001). See also Callies & Tappendorf, supra note 61.

63. Lars Noah, Administrative Arm-Twisting in the Shadow of Congressional Delegations of Authority, 1997 WIS. L. REV. 873, 874. Courts are not unaware of such pressures, as described by a dissenting California Supreme Court Justice in a case upholding a fee on parties planning to demolish or convert residential hotel units:

The government, in effect, says: We have the power; therefore, pay us to leave you alone. By any measure, that is extortion. Moreover, it turns the takings clause on its head. Instead of the government having to pay compensation to property owners, the government now wants property owners to compensate it to get back the fair value of property the government took away through regulation.

San Remo Hotel L.P. v. City & County of San Francisco, 41 P.3d 87, 27 Cal. 4th 643, 697-98, 32 ELR Digest 20533 (Cal. 2002).