2023 TOP 10 BLOG

VJEL Staff Editor: Nicolas Harris

Property Taxes Changing with the Tides

Some of the most valuable private real estate in the U.S. lies near the ocean shore. However, private homes and other structures along the coast are increasingly vulnerable to destruction due to rising seas and violent storms attributable to climate change. One of the very significant, but so far little discussed consequences of this trend is the likely erosion of the property tax bases essential to the economic well-being of coastal cities and towns. This problem requires thoughtful attention by courts in the years ahead, as well as the development of new legislative policies at the local, state, and national levels.

Ambulatory Coastal Boundaries

Recognition of the “ambulatory” nature of coastal legal boundaries has deep historical roots. As far back as the Roman Empire, the Justinian Code recognized that coastal waters and lands were owned by the sovereign in trust for all the people. Great Britain embraced this principle, but also reasoned that coastal landowners stand to gain land as well. Sir William Blackstone, the famous English jurist and commentator, observed: “as to lands gained from the sea by alluvion [accretion], where the gain is by little and little, by small and imperceptible degrees, it shall go to the owner of the land adjoining.”

Subsequently, this idea traveled across the Atlantic Ocean with the English colonists to North America, eventually becoming a bedrock legal principle in the U.S.. The boundary between private upland property and publicly owned coastal lands is defined in most states by reference to the mean high-water mark as measured over a cycle of approximately 18.6 years. The precise location of this boundary at any point along the coast has always been subject to change: as a result of erosion, the sea may advance inland; as a result of accretion, dry land may advance into the sea. As the physical high-water mark moves in either direction, the legal boundary dividing private ownership from public ownership moves as well.

Prior to the era of climate change, the long-established law of coastal boundaries was arguably logical and fair. Both private owners and the government found it useful to be able to pinpoint the legal boundary between public and private ownership along the coast; the visible high-water mark, even as it moved from time to time, served this purpose well. In addition, both private landowners and the public were treated fairly under this rule because dry uplands were just as likely to advance (expanding private ownership) as recede (expanding public ownership). While this legal regime subjected both private citizens and the public to uncertainty about the extent of their property holdings, each side had an equal chance of gaining or losing ground. And anyone who bought coastal property could reasonably be charged with understanding the risks involved in this investment.

All of this has been turned upside down because of climate change. Under current projections, the climate system will continue to warm over the near and medium-term. In almost all emissions scenarios, global warming is expected to hit 1.5C° by the early 2030’s. According to the U.S. Global Change Research Program, the sea could rise as much as three feet relative to its historic level by the end of the century. Instead of facing a more or less equal possibility of gaining or losing property as coastal shorelines change over time, private property owners face a largely one-way threat of property loss due to sea level rise with little prospect of property gain.

The likelihood of chronic sea level rise and the subsequent loss of private coastal landholdings raise the question of whether and to what extent coastal property owners can and should be able to defend their land rights by building coastal defense structures. In particular, if coastal property owners can succeed, at least for a period of time, in blocking the sea from advancing landward, should they also be able to prevent the legal boundary between public and

private land ownership from migrating? An important decision by the U.S. Court of Appeals for the Ninth Circuit, United States v. Milner, suggests that the answer is “no.”

The issue in Milner was whether coastal defense structures built by property owners along the shore trespassed on lands held by the United States in trust for an indigenous tribe. The court ruled that the United States had a solid trespass claim even though the defense structures physically blocked ocean waters from reaching inland. The Court ruled the landward reach of public ownership was defined by the point on the upland that the ocean would reach at mean high water if the structures did not exist. The logic of this decision suggests that, however successful coastal defense efforts may be in physical terms, public property ownership will still advance landward with rising seas. The Milner decision is almost certainly not the last word on this important legal issue, but the case establishes an important legal precedent that applies to the entire West Coast of the U.S.

The Prospect of a Diminishing Tax Base

One alarming consequence of the threat to private property along the ocean coast due to climate change is the prospect of rapidly eroding tax revenues for coastal cities and towns. Property taxes are a significant source of revenue for cities and towns in the U.S.. These funds finance public education, fire departments, and other municipal services that are critical to a community’s day-to-day operations. Property taxes are traditionally considered a relatively stable and predictable source of government funding compared to other revenue sources at the local level.

The scope of the threat facing local government tax bases has been highlighted by the September 2022 publication of a study by Climate Central (click on “national summary of county results”). The study identifies the coastal communities in the U.S. most at risk due to sea-level rise. Relying on scientific information provided by Shared Socioeconomic Pathways and

the Intergovernmental Panel on Climate Change, the study forecasts the likely loss of taxable properties in these communities. The study predicts that by 2050 approximately 4.4 million acres of current taxable property could be below the mean high-water mark. A reduction in taxable property for coastal communities of this magnitude will undermine local government’s abilities to provide necessary facilities and services. The four states that will suffer the greatest taxable property loss are Florida, Louisiana, North Carolina, and Texas. These states could lose a combined 3.8 million acres of taxable property by 2050.

Louisiana, which is especially vulnerable to sea-level rise, could lose up to 8.7% of its total land area to sea-level rise by 2050. Terrebonne and Lafourche Counties along the Gulf Coast are projected to lose over 60% of total land by that date. Florida is projected to lose 1.8% of its total land area by 2050. Florida counties Monroe, Charlotte, and Miami-Dade are each projected to lose more than 10% of their land area. The challenge for Miami-Dade County is especially serious because it is the most populous county in the state and derives enormous revenues from property tax.

The Climate Central study translates the projections of acreage lost to sea level rise into estimates of tax revenue shortfalls attributable to the loss of taxable properties. The study estimates that by 2050 Florida could lose approximately $7.01 billion dollars of property taxes. The study concluded that Texas is at risk of losing approximately $4.89 billion dollars in property tax revenue. And in North Carolina, the projected annual shortfall in property taxes is $4.47 billion dollars. These are obviously staggering amounts of money.

Looking Forward

Predictions of sea level rise, and the prospect of losing millions of acres of taxable private land to the sea, raise a host of challenging legal and policy issues.

One basic issue is whether the courts will continue to use the traditional method for determining the legal boundary between private and public ownership along the shore. As discussed, the traditional approach is justified in part by the fact that private property owners are equally likely to gain or lose land because of a changing shoreline. But that premise no longer holds in the era of climate change, and courts may need to rethink whether coastal property boundaries should continue to migrate at all in response to erosion (or, less likely in the future, accretion). The courts’ resolution of this issue will have a significant effect on how sea-level rise will actually impact local tax revenues.

The Milner case raises important questions about how local taxing authorities should treat coastal properties protected from the rising seas by coastal defense structures. Milner teaches that these lands should probably be regarded as public property. But if private homeowners and businesses continue to occupy the areas protected by coastal defense structures, and continue to rely on local government facilities and services, should the users of these lands still be expected to pay the equivalent of local taxes? If so, in what manner and amounts should local governments make such assessments?

Another important issue is the potential roles of state and federal governments in helping local communities address a shortfall in property tax revenues due to sea level rise. Higher levels of government should protect coastal cities and towns from a loss in property tax revenues due to climate change. Alternatively, given the special climate vulnerability of coastal cities and towns, combined with fiscal challenges they face, states and the federal government may have a special responsibility to finance adaptive measures which will help protect local communities (and their tax bases) from the consequences of sea level rise due to climate change.

In extreme circumstances, depending on the topography of the community and the extent of sea level rise, some communities may eventually become unlivable because of sea level rise.

Taking the long view, the near-term erosion of the local tax base due to property inundation may be a harbinger of a community’s eventual financial collapse as the sea continues to advance landward. As more taxable properties disappear the community is left with fewer and fewer resources to address greater challenges. States, and more likely the federal government, will inevitably need to step in to help plan and finance the relocation of some communities to safer and more physically sustainable ground.