Court of Appeals Rules on Agency Rulemaking Case

In Applegate-Bader Farm, LLC v. DOR (2018AP1239), the Court of Appeals District IV held that the Wisconsin Department of Revenue (DOR) complied with rulemaking procedures in Wis. Stat. Ch. 227 when it promulgated new rules regarding property tax classification.

 

Background

Wisconsin law provides certain incentives for property owners to participate in state and federal easement programs to achieve agricultural and/or environmental benefits. One incentive for landowners participating in easement programs is property tax classification as “agricultural use,” which is typically a lower tax rate. DOR proposed rules making changes to how and which properties participating in easements qualified for agricultural use classification for property tax purposes.

DOR’s initial draft of the rule listed certain criteria for determining if a property enrolled in an easement program met the definition of agricultural use. Plaintiff Applegate-Bader Farm, which was enrolled in a federal easement program, would have qualified for agricultural use classification under the initial draft.

After holding a public hearing, DOR made substantial changes to the draft rule that changed which properties would be eligible for agricultural use classification. The governor and legislature subsequently approved the rule in accordance with Ch. 227, and DOR promulgated the rule.

 

Plaintiff’s Claims

Applegate-Bader Farm filed this lawsuit seeking to invalidate the rule because DOR allegedly violated Ch. 227 rulemaking procedures by not revising the scope statement, revising the economic impact analysis, or holding another public hearing on the rule after the department made changes to the initial draft rule. Additionally, Applegate-Bader Farm argued that DOR did not sufficiently investigate the need for an environmental impact statement according to the Wisconsin Environmental Protection Act (WEPA).

 

Ch. 227

First, Applegate-Bader Farm argued that DOR violated § 227.135(2), which prohibits agency employees from working on drafting a rule before a scope statement is approved. Before scope statement approval, agency employees are limited to working only on preparing the scope statement. The court found that Applegate-Bader Farm did not adequately identify DOR communications constituting work on drafting the rule rather than communications related to preparing the scope statement.

Next, Applegate-Bader Farm argued that DOR violated § 227.135(4) requirements that agencies prepare a revised scope statement when “meaningful or measurable” changes are made. Applegate-Bader Farm proposed that any “meaningful or measurable” changes to the draft rules are “meaningful or measurable” changes requiring a revised scope statement. In this case, according to Applegate-Bader Farm, the changes DOR made to its initial rule draft were “meaningful and measurable” and therefore required DOR to issue a revised scope statement. The court agreed with DOR that a revised scope statement is required only when changes to draft rules “meaningfully and measurably” change the scope of the rules. In this case, DOR’s changes to the initial draft rules would not change the substance of the scope statement, so DOR was not obligated to issue a revised scope statement. The court found it would be unreasonable for agencies to have to re-scope draft rules every time they make changes to the draft rules.

Applegate-Bader Farm also argued that DOR should have held another public hearing after changing the initial draft rule. Previous case law Brown County v. DHSS (1981) held that agencies are required to hold an additional public hearing if changes to draft rules significantly differ from initial drafts. In this case, the court found that interested parties had adequate opportunity for input and influence at the first DOR hearing on the proposed rules, so another hearing was not required after DOR made the changes based on input from the first hearing.

Finally, Applegate-Bader Farm argued that DOR violated § 227.137(4) by failing to revise its economic impact analysis after changing the initial draft rules. The court found that Applegate-Bader Farm failed to establish that there would be “significant” changes to the economic impact due to the changes in the draft rule.

 

WEPA

Applegate-Bader Farm claimed that DOR’s decision not to prepare an environmental impact statement on the rule violated WEPA (Wis. Stat. § 1.11(2)). The court dismissed the WEPA claim, finding Applegate-Bader Farm’s argument that the proposed rule would have only “indirect effects” on the environment was insufficient. Previous case law holds that even significant indirect effects do not require agencies to prepare environmental impact statements. Since the plaintiff here alleged only indirect and no direct environmental effects, the court dismissed the WEPA violation claim.

 

For more on rulemaking procedures and statutory changes to Wisconsin rulemaking in the past few years, visit: /hcg-guide-to-the-wisconsin-administrative-rules-process/.





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