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Livestock Weekly

March 8, 2012

High Court Rules That Landowner Rights Also Include Groundwater

By Colleen Schreiber

AUSTIN — Do landowners own the water beneath their land? For most Texas landowners that’s a “well, duh” kind of question. However, that very question has only recently been definitively answered.

Last week the Texas Supreme Court handed landowners one of the most significant wins in recent memory. In The Edwards Aquifer Authority and the State of Texas, Petitioners, v. Burrell Day and Joel McDaniel, Respondents, the court ruled that landowners have an ownership interest in groundwater in place, and that the water beneath the land cannot be taken for public use without adequate compensation as guaranteed by Article I, Section 17(a) of the Texas Constitution.

The unanimous opinion authored by Justice Nathan Hecht says that “Groundwater rights are property rights subject to constitutional protection, whatever difficulties may lie in determining adequate compensation for a taking.”

The case, involving Bexar County landowners Burrell Day and Joel McDaniel, in part, is about whether action by the Edwards Aquifer Authority to issue a permit limiting their pumping from the Edwards Aquifer to 14 acre-feet of water instead of the 700 acre-feet they asked for resulted in a “taking” of private property. The high court ruled that the trial court had incorrectly concluded that the landowners did not have a constitutionally protected property right in their groundwater, and remanded the case to the district court for further proceedings.

Austin-based attorney Paul Terrill, who represents Medina County pecan growers Glenn and JoLynn Bragg in another takings case, has been battling the EAA on this property rights ownership issue since 1998. Not surprisingly, he finds the ruling “very gratifying” and “absolutely fantastic.” Terrill, who has won the only takings judgment against the EAA for the Braggs (the case is now on appeal), said the Supreme Court’s ruling confirms that landowners whose pumping rights have been taken away or severely restricted have a potential remedy through a takings suit.

“My view has always been that groundwater is a property right and that the water belongs to the landowner. It can be regulated like other types of property, but if that regulation prevents a landowner from using their water, the government must compensate the landowner for taking their property,” remarks Terrill.

Russ Johnson, of McGinnis, Lochridge & Kilgore, LLP, the lead attorney who successfully argued the Guitar case before the Texas Supreme Court, also applauds the Day decision.

“It was the correct decision. I think the court got it right in virtually all respects,” Johnson says. “In my view this doesn’t change the law. It confirms what most of us have felt the law was anyway.”

One of the key points that the court made clear is that the ruling does not stop a district’s ability to regulate, and in fact the court explicitly recognized the need to regulate, pointing out that, “In many areas of the state, and certainly in the Edwards Aquifer, demand exceeds supply. Regulation is essential to its conservation and use.”

“The Supreme Court, I thought, went to great lengths to make it clear that the ruling did not prevent regulation and that reasonable regulation under the Penn Central Doctrine, even if it diminishes the value of the landowner’s property, is not necessarily compensable,” remarks Johnson.

There are some, however, who believe the ruling means that the EAA will have to change the way it does business and possibly even revamp its regulations. Greg Ellis, former general manager of the EAA and the former executive director of the Texas Alliance of Groundwater Districts, opines that the ruling could potentially make things much more complicated for all groundwater conservation districts. He bases that opinion, in part, on the fact that the court writes, “A landowner cannot be deprived of all beneficial use of the groundwater below his property merely because he did not use it during a historical period.”

“That is going to make life for the EAA pretty tough,” Ellis opines, “because that’s pretty much exactly what the legislature said.” Ellis was referring specifically to the Edwards Aquifer Authority Act, the legislation governing the EAA.

“The purpose of a district, in my opinion, is to prevent harm that the rule of capture would allow and to try to the best of their ability to create sustainable aquifer production. The goal as much as possible should be one of sustainability.”

Terrill says that Ellis’ view is too regulation-friendly and landowner-unfriendly.

“The EAA and other groundwater districts can regulate groundwater production, but if they go too far, they need to compensate landowners for the loss of their property. That is not only fair, the constitution requires it.”

Johnson accuses Ellis and others of using scare-mongering tactics, telling people that this ruling now means landowners have the right to pump aquifers to extinction.

“The groundwater district clique that thinks ownership means the end of the world because they’ll be flooded with litigation and driven out of business or that we’re back to the law of the biggest pump is such a misrepresentation of the decision,” Johnson insists.

“I believe the exact opposite is true. Until last Friday, when clients called me up, I would tell them to get a permit, drill a well and start using their water,” Johnson admitted. “Today I can confidently tell them that they are going to have a protectable right to their groundwater even if they don’t use it.”

Ellis counters, and not surprisingly, it comes back to water marketing.

“Well if you’re T. Boone Pickens and you’re 70-something years old, and you say in an open forum that the plan for water for 50 years doesn’t interest me because I’m not going to be around — then to me that means he wants to sell as much water as he possibly can today.”

Ellis contends that the state has finally put together a model and a mechanism that recognizes that there is a limited supply of groundwater in the state. Once a GCD establishes its limit, then according to Ellis it is the district’s job to figure out a way to stay below the limit, and he contends that there are only two ways to do that.

“Either stop issuing new permits or keep issuing new permits but make current permit holders cut back in order to make room for the new guy. I promise you, people are unhappy with both results.

“The question that every district is going to have to answer now,” he insists, “is which method creates the least likelihood of liability to the district if there is a taking.”

Johnson disagrees.

“The Supreme Court made it clear that they were not ruling that regulation was a taking per se,” he reiterates. “Instead, they really made it clear that by ruling landowners owned groundwater in place they were not undoing the authority of the government to regulate that right. What they were saying correctly was if the government took that right away altogether or severely restricted that right with no good justification, then they could be liable for a taking.”

Ellis and the EAA have always contended that this kind of ruling means the EAA will now be flooded with takings litigation, but again, Johnson wholeheartedly disagrees.

“They’re not going to be deluged with a tsunami of takings claims. The first thing is this decision doesn’t change the law; it clarifies the law — that landowners have a property right that’s protectable.”

He went on to explain that for purposes of “takings” or inverse condemnation, there are a series of “statutes of limitations” that can apply. He also notes that unlike every other groundwater district in Texas, the EAA has what he referred to as a “unique need for extraordinary restrictions” on the exercise of a landowner’s groundwater right. What he’s referring to is the fact that the Edwards Aquifer almost solely supplies the water needed for nearly two million people as well as the criminal provisions the EAA has to abide by because of the Endangered Species Act.

“Those are pretty compelling problems that justify extraordinary or extensive restrictions,” Johnson insists.

In fact, Johnson opines that the only two places in the state where extraordinary restrictions on private property rights are probably constitutionally sustainable are in Harris and Galveston counties (in the subsidence district) and in the Edwards Aquifer region.

“Everywhere else the goal of conserving the resource doesn’t justify preventing people from exercising their right. That’s the fundamental problem that groundwater districts have. They would prefer to be in the ‘let’s conserve this for the future’ camp when the law says they have to recognize the right of their regulated community to produce the resource,” states Johnson.

Johnson also points to the court’s thoughtful analysis of Penn Central, pointing out that to win a regulatory takings case, the balancing analysis — involving a physical invasion of property which doesn’t apply in Day, as well as a deprivation of all economically beneficial use of property and interference with investment-backed expectations — must be considered. In short, what Johnson and others have implied is that to win an actual takings case against the EAA will be extremely difficult.

He acknowledges that there will likely be takings cases that come forth from Chapter 36 districts. In fact, he was about a week away from filing one such case against a district when the Day opinion was rendered. He’s hoping the district will now reconsider its actions.

“There are two types of groundwater districts that unless they change their behavior are going to get sued — those that have gone to historic users and said ‘We’ve done our planning process and we’re using too much water and we need to cut your water by a certain percent,’ and those districts that decide they have a cap that then decide they’re going to award all of that water to a group of historic users and everyone else gets zero. Those kinds of districts will find themselves in lawsuits,” Johnson insists.

More broadly, a district that limits permits for pumping simply for political reasons and/or to stop transport of water out of a district, or to keep landowners from selling their water out of a district, or a district that limits pumping or permit amounts based on something other than sound science may also be facing a takings claim in court.

Johnson notes that in the last legislative session lawmakers revised substantially the desired future conditions process and specifically directed groundwater districts to consider aspects of impacts on property owners and to also consider the total recoverable resources of the aquifer in making their DFC decisions. He’s hopeful now, given the Supreme Court decision and this change in the legislation, that groundwater districts will stop trying to reverse engineer their DFCs to meet their local objectives or pumping demands and prevent folks from producing groundwater when that groundwater is available for production.

The Day opinion also acknowledged the differences between Chapter 36 districts and the EAA, noting specifically that the EAA’s powers and duties are governed by the EAAA, not by chapter 36 of the Water Code. The EAAA does not refer to chapter 36.

How Chapter 36 districts are allowed to regulate is completely different from the EAA. Chapter 36 districts, for example, use several factors including groundwater production capability of the aquifer, well spacing, consideration of historic use, and a district’s approved management plan, while the EAA’s main focus in issuing permits is historic use and timely application for initial regular permits.

In the opinion the court talked at some length about the historic use provision, noting that the Authority argued that historical use is a sound method for establishing permit limits because it recognizes the investment of the landowner in developing that groundwater resource. The court, however, pointed out that “had the permit limitation been anticipated before the EAAA was passed, landowners would have been perversely incentivized to pump as much water as possible, even if not put to best use, to preserve the right to do so going forward.”

The court went on to say, “Neither the Authority nor the State has suggested a reason why the EAAA must be more restrictive in permitting groundwater use than Chapter 36, nor does the Act suggest any justification. But even if there were one, a landowner cannot be deprived of all beneficial use of the groundwater below his property merely because he did not use it during a historical period and supply is limited.”

The East case, known more commonly as the rule of capture, has long been considered the defining case in Texas groundwater law, and many water attorneys fighting for landowners’ rights hang their hat on East. The court, however, wrote that “No issue of ownership of groundwater in place was presented in East, and our decision implies no view of that issue. Instead, riparian law, which East invoked, governs users who do not own the water. Under that law, the railroad would have been liable even if East did not own the water in place. The railroad escaped liability, certainly not because East did own the water in place, but irrespective of whether he did.”

The court instead turned to a quote from the New York Court of Appeals decision in the 1866 Pixley v. Clark case: “An owner of soil may divert percolating water, consume or cut it off, with impunity. It is the same as land, and cannot be distinguished in law from land. So the owner of land is the absolute owner of the soil and of percolating water, which is a part of, and not different from, the soil. No action lies against the owner for interfering with or destroying percolating or circulating water under the earth’s surface.”

The court in Day wrote: “Whatever the New York court may have intended by this statement, we could have meant only that a landowner is the absolute owner of groundwater flowing at the surface from its well, even if the water originated beneath the land of another.”

The court also relied heavily on oil and gas law, noting that while there are differences, it was decided long ago that oil and gas are owned in place, “and we find no reason to treat groundwater differently.”

The Authority argued that oil and gas and water are so fundamentally different “in nature, use, and value that ownership rights in oil and gas should have no bearing in determining those in groundwater.”

The court disagreed, writing that, “Again, the issue is not whether there are important differences between groundwater and hydrocarbons; there certainly are. But we see no basis in these differences to conclude that the common law allows ownership of oil and gas in place but not groundwater.”

Ed McCarthy, of Jackson, Sjoberg, McCarthy & Townsend, LLP, a seasoned water attorney representing the interests of landowners, points out that the Day ruling is important because we now have a definitive statement of the landowners’ rights in Texas common law and a legislative finding of groundwater ownership in place in favor of landowners. In the opinion, the court pointed to the Groundwater Conservation District Act of 1949, which later became Section 36.002 of the Water Code. The court then pointed to the amendment made to 36.002 during the last legislative session, in which lawmakers attempted to more clearly define the ownership issue.

McCarthy also believes that the court did a good job of articulating a distinction between oil and gas law and groundwater law and how we should not look at the strict construction of oil and gas law in terms of permitting oil and gas development with respect to limiting groundwater permitting. For example, the Authority argued that groundwater cannot be treated like oil and gas because “landowners have no correlative rights, not because their rights are different.”

The court, however, said that argument fails.

The court also clearly recognized that groundwater is different from oil and gas in that it is a renewable natural resource but one that must be managed for current and future needs.

The court wrote: “Groundwater regulation must take into account not only historical usage but future needs, including the relative importance of various uses, as well as concerns unrelated to use, such as environmental impacts and subsidence.”

Johnson agrees that it makes sense that the court looked to oil and gas law guidance because the principle common law ownership rule applies to both minerals and water. However, not every water attorney agrees with that line of thinking.

“I personally think that’s a mistake,” Ellis said. “If everyone had the same goal for their groundwater like almost everyone has for their oil and gas, then that would be appropriate. We can measure an oil and gas field and calculate very closely how much can be produced from that field and then we can divide up how much everyone gets paid.

“If everyone wanted to sell their groundwater we might be able to do something like that for groundwater, though remember that the amount of groundwater changes, maybe on a daily basis. The problem is there are a lot of people who don’t want to sell their groundwater; they want to keep it and conserve it for the future. Now, under this ruling I’m afraid they’re not given that opportunity.”

Ellis went on to contend that because the court has ruled that the landowner owns the water in place, that somehow makes the powers of the groundwater districts null and void and we revert back to the old law of the biggest pump because once again “a neighbor can now pump your groundwater out from under your property and there is nothing you can do about it.”

However, it seems clear that groundwater should be regulated considering other factors, that the court is only tying groundwater to oil and gas in the actual ownership issue in that groundwater, like oil and gas, is a property right held in place. Nowhere in the opinion, as Johnson and McCarthy point out, did the court say that groundwater should be regulated like oil and gas. In fact, the court went out of its way to make clear that groundwater districts can still regulate and that local control is the preferred method for groundwater management.

Terrill, too, is of the opinion that the court was right to tie groundwater law to oil and gas, and he uses oil and gas case law to counter Ellis’ and the EAA’s insistence that because of Day there will now be a deluge of takings cases coming forth. He pointed to the fact that the ownership issue in place in oil and gas law for almost 100 years has not had a deluge of takings cases resulting from oil and gas regulation.

Ellis counters that the only reason there hasn’t been a pile of taking cases in oil and gas is because of the pooling rule.

“That (pooling) won’t work for groundwater. We can’t do the same kind of calculation for available water in the aquifer that we do for oil and gas. And, again, we have people who have no intention of selling; they don’t want to see the aquifer emptied out; they want it sustained or maintained as long as possible, so that regulation just doesn’t work for groundwater.”

Ellis also contends that had the court decided not to follow the oil and gas model, had they ruled that there is not a vested right until the groundwater is captured, there wouldn’t be this mountain of takings litigation, which Johnson, McCarthy and Terrill all stress is only a perceived threat at best. That perceived threat, however, was championed last week by the editorial board of the Austin American Statesman in their opinion piece, entitled “Groundwater Ruling Potentially Unleashes Geyser of Future Cases.”

Terrill calls the EAA’s “Chicken Little ‘the sky is falling’” argument and their talk about the horrible consequences that are likely to come from this ruling “nonsense.” He points out, as did the court in its opinion, that out of the 1100-something permits issued by the EAA, only three takings cases were filed – Day, Bragg and another that was settled by the EAA.

Terrill’s Bragg case will most likely be the first groundwater-related takings case to come before the Texas Supreme Court. In 2011 the Braggs received a trial court judgment for a taking against the Edwards Aquifer Authority for roughly $730,000. That case is now on appeal to the San Antonio Court of Appeals, and Terrill says he’s in the process of briefing it now.

However, Terrill points out just how difficult takings cases are to win. Not only that, but these kinds of cases typically carry on for years and years, which means to persevere takes deep pockets.

“Takings cases are hard to win. The deck is stacked in favor of the government, and few lawyers are willing to take on these difficult cases. That’s why you don’t see ads in the phone book or on late night TV from lawyers clamoring to take on the government on a contingency fee basis.”

The court wrote: “While the expense of such litigation cannot be denied, groundwater regulation need not result in takings liability. The Legislature’s general approach to such regulation has been to require that all relevant factors be taken into account. The Legislature can discharge its responsibility under the Conservation Amendment without triggering the Takings Clause. But the Takings Clause ensures that the problems of a limited public resource — the water supply — are shared by the public, not foisted onto a few. We cannot know, of course, the extent to which the Authority’s fears will yet materialize, but the burden of the Takings Clause on government is no reason to excuse its applicability.”

McCarthy points out that Day does not offer a roadmap per se as to how to win a takings case. He explains that in a federal takings case, to have an actual takings, the landowners have to prove a loss of the use of the property. Texas law, however, is unique in that the law allows a takings claim for that same provision but in addition there is a provision in Article 1, Section 17 that talks about injury to the property right. That provision, McCarthy explains, allows a landowner to claim damages for less than a whole taking.

“What has not been developed, and what’s not clear to me, is whether the court is going to allow a takings claim to be brought forth if a groundwater district grants a landowner a permit for irrigation use but won’t do the same for municipal use.”

Johnson agrees that some uncertainty remains, in that the court did not really offer any guidance as to how much regulation is too much.

“Where that line falls for each individual district is uncertain at this point.”

McCarthy says that each takings case will have to be decided on its own merit.

“There is certainly a cleaner set of criteria in the Edwards Aquifer Authority Act because of the detailed provisions and the detailed legislation,” comments McCarthy. “What Chapter 36 districts don’t have is 70 pages of very detailed, very specific, focused legislation. They have a bunch of broad parameters and statements.”

“I want to be clear that I don’t think that GCDs are going to be sued because they are adopting unreasonable regulations. I think they’re going to be sued because someone is going to think that whatever regulation they adopt is unreasonable,” remarks Ellis. “We already have people arguing that we should pump aquifers to extinction, and not allowing that means some landowners will file a takings claim.”

He continues, “I think we’ll probably have to see five or six such cases reach the Supreme Court from different appellate courts before we come up with a better definition of how to work that Penn Central Balancing Test — in terms of what’s appropriate and what’s not. The Bragg case has already gone through that balancing test, and the court found the district liable for $700,000-plus in damages. If that is upheld by the Fourth Court of Appeals, I don’t know where that money comes from or how the EAA could continue to pay out damages like that.

“The Chapter 36 districts who are all defining their own regulatory schemes are almost certainly going to be tested,” Ellis continues. “I think it will take several districts across the state to determine what the limits are. There may be no path for not getting sued.”

McCarthy reminds that to win a takings case will by no means be a slam dunk.

“Even if you win, it doesn’t mean you’ll strike it rich. You have to prove devaluation and loss,” he reminds.

He also points out that there are other “perils” associated with a takings case, including the right of reimbursements of attorneys’ fees for the district if they win. That almost obscure point at the tail end of the opinion is one that Terrill has issues with as well.

“There remains a provision that makes it mandatory for a groundwater district to recover attorneys’ fees. Yet, if the landowner wins, the landowner doesn’t get the same rights to recover attorneys’ fees.”

McCarthy says he wishes the court had said more about the need for good science in groundwater management, though he’s pleased that the court recognized that there can’t be a one-size-fits-all kind of regulating scheme.

“There will be bumps in the road in a couple of places,” McCarthy admits. “There will be someone who files a crazy lawsuit, and some of the districts will go nuts and in a knee-jerk reaction those districts will want to change a bunch of things.”

He predicts that during the next legislative session groundwater districts will try to find a legislative fix around Day.

“They’ll be scrambling like hell to get legislation passed to give them powers they want to think they have. “Hopefully, the courts will dispose of the crazy lawsuits,” he continues, “and we will continue to have the good guidance that we need with property rights regulation like we’ve always had.

“I know there are a variety of feelings about that, but it’s like zoning ordinances — they’re there for a reason. The EAA has created a very good market; things are working very well. I don’t think that’s going to blow up.”

Johnson opines that the court ruling most likely will make it easier for water transactions to occur, and he views that as a positive for the state.

“Bottom line, the state needs to develop a massive amount of water to meet its future needs. I think we all know that surface water is going to be very hard to develop in the future, so what we have is an opportunity to put to beneficial use a resource that is underutilized in some areas — that’s not true in the Ogallala and the Edwards — but believe me, in the vast majority of the Carrizo Wilcox and the vast majority of the Gulf Coast Aquifer and a substantial portion of the Trinity, it’s underutilized. The reality is we need to manage the resource, but we can’t manage it in a way that puts it off limits for now in the hope that somehow it will be available in the future. What’s the point of that?”

Terrill says there will always be issues within the Day opinion that attorneys can and will argue about.

“What they can’t argue about anymore is this claim that there’s no property right in groundwater in place.”

“Ultimately, they came to the right conclusion,” remarks McCarthy. “The groundwater districts and the EAA and their attorneys may have won the battle on East, but we won the war.”

The EAA issued a press release with a statement from Luana Buckner, Chairman of the Edwards Aquifer Authority Board of Directors, saying that, “At this time, we are reviewing the Supreme Court’s opinion in detail to further ascertain the implications it may or may not have for the continued effective management and protection of the Edwards Aquifer and the economic interests of those who rely on it as their water source.”

The statement went on to point out that the opinion affirms that the EAA has carried out its responsibilities appropriately and that they are awaiting further legal review of the opinion before commenting further.

Now Day and McDaniel will go back to the trial court and put on their taking evidence and attempt to recover damages from the EAA, a process that will itself take years to complete.

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Upcoming Events

April

April 22 - Earth Day! - Earth Day Events

April 22 in Austin - Texas Water Journal Forum focusing on current challenges to rural and urban water conservation - Details

April 23-25 in Kerrville - Bennett Trust Educational Program: "Protecting the Legacy of the Edwards Plateau" - Details

April 23-27 - 2014 Hill Country Nature Quest - Tour the Hill Country River Region and learn about native plants, birds, butterflies and wildlife - Details

April 25 in Austin - SOLD OUT - Kent Butler Summit, “Faucets, Toilets, and Automobiles: Balancing Growth and Sustainability in the Barton Springs Aquifer Region” - Details

April 25-27 in Fredericksburg - 4th Annual Wings over the Hills Nature Festival - Details

April 26 in Austin - Native Plant Spring Symposium - Hosted by The Native Plant Society of Texas and the Lady Bird Johnson Wildflower Center - Details

April 28 in Kerrville - Native Bees of Texas - A meeting of the Hill Country Master Naturalist - Free and open to the public - Details

April 30 - Keeping Rivers Flowing: Innovative Strategies to Protect and Restore Rivers - Free three-part webinar series on strategies to ensure the future health of Texas' rivers, bays and estuaries - Details

May

May 3 in Bandera - 13th Annual Medina River Cleanup - Details

May 6 in Medina - Fruit Tree Management Workshop - Hosted by Texas A&M AgriLife Extension Service - Details

May 7 in San Antonio - Public Health and the Built Environment - Healthy Communities by Design - Details

May 8 in San Antonio - Urban Wildlife Management Workshop - Details

May 9 in Boerne - Monarch Workshop: Monarch Biology, Ecology & Monarch Larval Monitoring Project Training - Hosted by the Cibolo Nature Center - Details

May 9 in Stonewall - 2014 New Landowner Series: Forage Production, Livestock Production and Handling, Crop Production - Presented by the Texas A&M AgriLife Extension Service - Details

May 10 in Wimberley - Grand Opening of the newly improved Jacob's Well Natural Area - Details

May 12 in Fredericksburg - Better Lights for Starry Nights: Learn how to save money, preserve our night skies and enjoy some star gazing! - Hill Country University Center - Details

May 13 in Kerrville - Texas Riparian & Stream Ecosystem Workshop – Upper Guadalupe River - Details

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May 14 in Marble Falls - Better Lights for Starry Nights: Learn how to save money, preserve our night skies and enjoy some star gazing! - Details

May 16 in Fredericksburg - Better Lights for Starry Nights: Learn how to save money, preserve our night skies and enjoy some star gazing! - Enchanted Rock State Natural Area - Details

May 16 in Austin - Exploring Conservation Design in Central Texas with Randall Arendt - Details

May 19 in Austin - 2014 Texas Water Summit: Securing our Economic Future - Presented by The Acadamy of Medicine, Engineering & Science of Texas Details

May 28-30 in San Antonio - Southwest Stream Restoration Conference - Details



See more upcoming events


Photo Contest

Photo contest begins March 1st!
Details


Imagine a place where vibrant communities draw strength from their natural assets to sustain their quality of life. A place where citizens care about protecting the special qualities of a region – their region. A place where people and partners band together to envision a better economic future, tackle shared challenges and care for the natural, scenic, and recreational resources that define the place they call home.
~This is a Conservation Landscape



Hill Country View
Listen and Learn



Maps

Helpful Mapping Resources - Beautiful and informative maps of the region to print and share.

HCA Dynamic Mapping Tool - Interactive online GIS mapping tool

 
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