Divvying Atlantis: who owns the land beneath navigable manmade reservoirs?

• Author: Andes, Roy H.

I.

INTRODUCTION

For over a century, the federal government has been permitting dam-building on navigable rivers to create artificial reservoirs for irrigation, reclamation, and-electrical power. Congress has granted dam permits under various legislation to both utilities and federal agencies.(1) Many of these federally flooded lands, containing oil, natural gas, precious minerals, and shellfish, have growing value. In addition, these lands serve as habitat for fish, wildlife, and plants. This ripening underwater investment poses the question of who owns the artificial Atlantean domains: the utilities, the states, or the federal government? It presents an issue not yet confronted by any court.

This, article advocates for state ownership of the artificial federal reservoir basins. It first reviews the origin of the issue -- why states might formulate such a claim. In Part II, this article reviews seven public policy considerations that support state ownership. Part III analyzes the legal arguments, considering first whether federal or state law applies. The article then considers the provisions of various state laws in sub-part B, and those of federal law in sub-parts C and D.

II.

BACKGROUND & QUESTIONS

In general, each individual state owns the land beneath its rivers and lakes that are navigable at the time of statehood.(2) Describing this ownership, the U.S. Supreme Court has stated:

Under English common law the English Crown held sovereign title

to all lands underlying navigable waters .... When the 13 Colonies

became independent ... they claimed title to the lands under navigable

waters ... as the sovereign successors to the ... Crown.

Because all subsequently admitted States enter the Union on an

"equal footing" with the original. 13 States they too hold title to the

land under navigable waters within their boundaries .... (3)

Thus the states owned, and still own, the original riverbeds of navigable rivers.(4) But when a federal dam is built, artificially flooding adjoining dry land and creating an enlarged navigable waterway, who holds title to the newly submerged land? While the question could be argued legally several ways, people commonly assume that title remains in the dam builder who condemned it. This article argues otherwise: that ownership by the respective states is more persuasive, both legally and on the basis of public policy. In a case of first impression, the outcome will likely be shaped as much by public policy considerations as by application of the law.(5)

Not all federal reservoirs were created by the same agency or even under similar statutes.(6) The principal statute, the Federal Power Act,(7) allows a licensee to obtain a permit from the Federal Power Commission, now the Federal Energy Regulatory Commission (FERC), to construct a dam on navigable waterways for generating electrical power. In many cases, however, reservoirs were authorized by special legislation.(8)

To facilitate the task of building dams, all the applicable federal statutes empower each licensee to condemn or otherwise pay for the land to be flooded.(9) After reservoir completion, the licensees sell services such as electricity and irrigation water that, over time, pay for the cost of acquiring land and constructing the dam.

Many dam licensees, since condemning the newly submerged lands, may have paid property taxes on the those lands, not including the original riverbeds which the licensees generally admit to be property of the respective states.(10) In all likelihood, however, few surveys have been conducted to locate or mark the banks of natural riverbeds beneath reservoirs. To what extent it would be technically possible now to identify historic riverbeds presents difficult factual considerations. Similarly, some states may have assessed taxes on dams and submerged lands on the basis of depreciated cost, while others may have used some other valuation. Despite these variations from state to state and dam to dam, sufficient factual consistency remains to draw common public policy and legal conclusions.

III.

PUBLIC POLICY CONSIDERATIONS

The dam licensees/condemners would no doubt seek to characterize state claims to these basins as a sort of "land grab." After all, the utilities paid for the flooded land and may have been paying taxes on it. State claims may be seen by them as little more than legalized mugging.

But the public policy question is most appropriately framed as: Who should obtain the benefit of the unforeseen increase in value of submerged lands -- the collective citizens of the affected states, the shareholders of electric utilities, or the federal government? The issue is so framed in light of the following seven considerations.

First, the states hold title to submerged lands not as a private landowner, but in trust for their citizens.(11) This function of government has a long history.(12)

Title to beds beneath navigable waters is held by the sovereign as a

public trust for the public."Such waters ... are incapable of ordinary

and private occupation, cultivation and improvement; and

their natural and primary uses are public in their nature, for high-ways

of navigation and commerce, domestic and foreign, and for

the purpose of fishing ...."(13)

The states' diverse and evolving interests in submerged public lands constitute a basic attribute of their sovereignty.(14)

[T]he beds and shores of [navigable] waters ... properly belong to the states

by their inherent sovereignty, and the United States has wisely abstained

from extending (if it could extend) its survey and grants beyond the limits

of high water .... Such title being in the state, the lands are subject to

state regulation and control, under the condition, however, of not

interfering with the regulations which may be made by Congress with regard

to public navigation and commerce."(15)

Not only is the state's trust ownership protected from undue federal influence, but the state itself is subject to significant fiduciary responsibilities, described by the Supreme Court in the landmark case of Illinois Central R.R. Co. v. Illinois:(16)

The State can no more abdicate its trust over property in which the

whole people are interested, like navigable waters and soils under

them ... than it can abdicate its police powers in the administration

of government and the preservation of the peace .... [T]he use of

such powers may for a limited period be delegated to a

municipality or other body; but there always remains with the

State the right to revoke those powers and exercise them in a

more direct manner, and one more conformable to its wishes. So

with trusts connected with public property, or property of a special

character, like lands under navigable waters, they cannot be placed

entirely beyond the direction and control of the State.(17)

The states' public trust responsibilities for submerged lands are serious and subject to equally serious judicial scrutiny.(18) No doctrine of federal jurisprudence matches the scope and rigor of the "public trust doctrine" that has been developing in some state courts. In any case, it is settled that states' responsibilities for navigable waters constitutes a fiduciary trust.(19)

Second, a federal licensee obtains a special, uniquely-governmental privilege -- the right to condemn land. This privilege is granted by Congress on the premise that power-generation, reclamation, and flood-control enhance the collective public welfare. Although regulated utilities are ordinarily expected to turn a profit from their permitted activities, underwater resource exploitation probably well exceeds the bounds of Congress' expectations for its dam licensees.(20) Courts should therefore be quite circumspect about expanding the privileges of the licensees under the federal acts, especially when the right claimed by the licensee has nothing to do with the purposes of the enabling federal legislation.(21)

A third public policy consideration is the probability that mineral rights and habitat in these reservoirs were little-valued -- if they were valued at all -- in the acquisition process. If nothing were paid for mineral rights, subsequent mineral discovery becomes an unbargained-for benefit. When a court interprets the special privileges given federal power licensees, deciding the ownership of such unforeseen benefits should therefore be strongly influenced by public welfare considerations and contractual concerns about unjust enrichment.

Fourth, the public's interest in reservoir management must be considered.(22) Anyone who extracts resources from a reservoir obviously will be subject to police power regulations of Congress and the state legislature. However, if the states own the resources beneath federal reservoirs, political considerations will also restrain their activities. If licensees are deemed the owners of these minerals, the only public control over their exploitation would be through the police-power, recognized by many courts as a lighter, less-effective form of resource management.(23) If owned by the federal government, resource development may escape state regulation entirely.(24)

Fifth, whatever moneys were paid by the dam builders to purchase the reservoir basins, the consumers/rate-payers have long-since been repaying whenever they pay for water power or irrigation. To allow the licensees to also benefit from the exploitation of minerals and other resources under the reservoirs would result in double-payment for the privilege of being a federal licensee -- unless, of course, those revenues can be used to offset electricity rates. The same perspective applies to the property taxes paid on the submerged lands.

A sixth consideration arises from the Federal Power Act, which treats the licensee's rights to the dam facility as a nonownership interest. The Act views the facility ratepayers as the real parties in interest. Federal Power Act licenses are granted only for 50 years.(25) At expiration the U.S...