## Facts

- In 1995, the United States Fish and Wildlife Service (FWS) listed the southwestern willow flycatcher, a small riparian-nesting bird, as endangered under the Endangered Species Act (ESA).
- FWS initially deferred designating “critical habitat” for the flycatcher, stating it needed more information.
- After a district court ordered FWS to proceed, FWS issued a critical habitat designation (CHD) and, as required by ESA § 4(b)(2), prepared an economic analysis.
- FWS used an “incremental baseline approach,” treating the economic effects triggered by the listing decision as part of the regulatory baseline and excluding those effects from the CHD analysis.
- FWS reasoned that the impacts of listing and critical habitat were “co-extensive,” so the CHD created no additional economic effects beyond the listing, and it therefore concluded the CHD had no economic impact.
- New Mexico Cattle Growers Association and other plaintiffs sued, alleging FWS’s baseline approach unlawfully minimized the costs of designating critical habitat and violated the ESA and the Administrative Procedure Act (APA).
- The district court upheld FWS’s methodology and the CHD, and plaintiffs appealed to the Tenth Circuit.

## Issues

1. Whether ESA § 4(b)(2) allows FWS, in analyzing the “economic impact” of designating critical habitat, to exclude all costs attributed to the species’ prior listing by treating them as part of a baseline.
2. Whether FWS’s economic analysis for the flycatcher CHD, which concluded there were no economic impacts because listing and CHD effects were “co-extensive,” was arbitrary and capricious or otherwise not in accordance with law under the APA.

## Decision

- The Tenth Circuit rejected FWS’s incremental baseline approach for the flycatcher CHD economic analysis.
- The court held that FWS’s methodology violated ESA § 4(b)(2) because it effectively removed the statute’s required consideration of economic impacts from the critical habitat process.
- The court concluded that FWS’s “no additional impact” finding rested on an unlawful construction of the ESA and could not support the CHD under the APA’s arbitrary-and-capricious review.
- The court reversed the district court’s judgment upholding the CHD and remanded to FWS for a lawful economic analysis and reconsideration of the designation consistent with ESA § 4(b)(2).

## Legal Principles

- ESA § 4(b)(2) requires FWS to consider the economic impact of specifying areas as critical habitat and gives the agency discretion to exclude areas when the benefits of exclusion outweigh the benefits of inclusion, subject to the extinction limitation.
- An agency may not structure its economic methodology so that the required economic analysis yields a predetermined result (such as “no impact”) by assigning all meaningful costs to a baseline and counting only marginal effects above that baseline.
- When an agency’s interpretation of an ESA economic-analysis requirement conflicts with the statute’s text and function, the resulting rule may be set aside as not in accordance with law and arbitrary and capricious under the APA.
- If the agency’s economic analysis is legally flawed, the associated critical habitat designation must be reconsidered on remand using a lawful approach to economic impacts.

## Conclusion

In New Mexico Cattle Growers Association v. United States Fish and Wildlife Service, the Tenth Circuit held that FWS’s baseline approach to evaluating the economic impacts of designating critical habitat for the southwestern willow flycatcher unlawfully stripped ESA § 4(b)(2) of its economic-analysis requirement, so the court reversed the judgment upholding the designation and remanded for a new economic analysis and reconsideration of the CHD.


New Mexico Cattle Growers Association v. United States Fish and Wildlife Service, 248 F.3d 1277 (2001)