Restored historic and old buildings, particularly in cities like San Francisco, contribute to the distinctive character that lure tourists and thereby creates jobs. Two relatively recent changes affect those buildings and the potential for their continued revitalization. First, changes to the Historic Tax Credit may alter the capital stack used to finance the rehabilitation of historic projects, as well as the overall return on investment for such projects. Second, changes to the Standards for the Treatment of Historic Properties with Guidelines for Preserving, Rehabilitating, Restoring and Reconstructing Historic Buildings may alter how historic resources are treated and the mitigation measures required under the California Environmental Quality Act.
On October 15, Governor Brown vetoed AB 890, a bill that would have limited the use of the voter initiative to effect certain land use actions. In his veto message, Governor Brown noted his concerns regarding a “piecemeal” approach to California Environmental Quality Act (CEQA) reform, stating instead his preference for a more “comprehensive approach” that balances the need for more housing and environmental analysis. Industry observers also had raised concerns regarding the constitutionality of the bill’s attempted limits on the initiative power.
Over the past four months, Sacramento lawmakers have introduced a number of bills to tinker with the state’s premier environmental statute, the California Environmental Quality Act (CEQA). While it is too early to know whether any of the proposed changes to CEQA will be enacted, each could impact the building industry. Below are a few to watch as they wind their way through the legislature:
- SB 224 (Jackson) would fundamentally change how CEQA analysis is performed. Today, to determine whether a project would have a significant adverse effect on the environment, a lead agency looks at the change to existing environmental conditions (usually referred to as the “environmental baseline”) resulting from the project. That change is then measured against the agency’s “threshold of significance.” If the change exceeds the agency’s significance threshold, then it must be mitigated, avoided, or overridden as prescribed by CEQA. In establishing the environmental baseline conditions, the lead agency is not now required to examine whether conditions at the project site, such as existing development, occurred legally and pursuant to a required permit. Unpermitted and illegal conditions at the project site are included within the baseline based on CEQA’s current language and well-established case precedent. SB 224 would change the baseline equation by excluding from the environmental baseline existing conditions resulting from illegal or unpermitted actions, emergency repairs to public service facilities, or other actions necessary to prevent or mitigate an emergency, if such actions were made without CEQA review. This change will require lead agencies, in describing the environmental baseline, to figure out if past illegal, unpermitted, or emergency actions occurred without CEQA review at any time in the past, and then look beyond what actually exists at the project site and speculate on what the condition of the environment would be without those actions. (This approach to establishing the environmental baseline is similar to that historically used by the California Coastal Commission for projects within the Coastal Zone.) SB 224 is set for hearing by the Senate Standing Committee on Environmental Quality on April 19.
- AB 890 (Medina) would require an initiative proponent to file a copy of a proposed measure with the local agency and ask for environmental review of the measure. The local agency then has 30 days to determine if the action proposed by the initiative is subject to CEQA, and if so, whether it has the potential to significantly impact the environment. If it has such a potential, the proposed measure cannot be adopted by initiative, but instead could receive a public hearing if a sufficient number of signatures are collected and after CEQA review is complete. Even if the action proposed by the initiative has no potential to significantly impact the environment, AB 890 gives the local agency 180 days to prepare a negative declaration and requires that the negative declaration be circulated for public review and comment for at least 20 days before the meeting at which the legislative body would consider certifying the initiative. Assembly member Medina has described AB 890 as closing “an initiative process loophole that wealthy developers use to avoid environmental review,” but that description fails to capture the bill’s transformative nature. As drafted, the bill constrains the right of any person, not just the wealthy, to have a direct voice in local land use decisions. AB 890’s next hearing will be before the Committee on Elections and Reapportionment.
- AB 1404 (Berman) would expand the scope of CEQA Guidelines Section 15332, more commonly known as the “infill exemption.” This categorical exemption promotes California’s goal to locate new development in already developed areas as a way to preserve pristine land and reinvigorate existing communities. As currently drafted, the infill exemption applies in cities, but not counties. AB 1404 would expand this exemption to include proposed development within the unincorporated areas of a county on for projects of no more than five acres which are “substantially surrounded by urban uses.” If this bill passes, smaller infill projects in counties could be approved more quickly, avoiding lengthy CEQA review. The bill awaits its first hearing before the Assembly’s Committee on Natural Resources.
- SB 80 (Wieckowski) would make a number of changes to CEQA’s noticing requirements. The most significant of these changes involves projects determined by the lead agency to be exempt from CEQA. Currently, an agency does not need to file a notice of determination with the Office of Planning and Research when it approves a project that it finds to be exempt. SB 80 requires the filing of such notices for exempt projects. This bill adds to CEQA’s required procedures and could trip up an unwary lead agency. Many project applicants already ask the lead agency to file a notice of determination for exempt projects because doing so shortens the statute of limitations for challenging the exemption from 180 days to 35 days. This bill would make that filing a necessity which project applicants should closely monitor to make certain that the agency makes the filing. SB 80’s next committee hearing will be before the Senate Committee on Appropriations.
The development of a real estate project of almost any size is going to require compliance with the California Environmental Quality Act – CEQA – generally through the preparation of an environmental impact report – an EIR. Those who have gone through the process know that the preparation of an EIR can cost hundreds of thousands of dollars and take a year or more, all this before the first public hearing. Further, opposition to an approved project frequently results in a lawsuit, one which generally claims that there has been a failure to comply with CEQA, either because an EIR should have been prepared (if one hadn’t been) or else that the EIR that was prepared was inadequate. That litigation can, by itself, add hundreds of thousands of dollars in costs and two or three years before the first spoonful of dirt can be moved even assuming that the opponents’ lawsuit fails. Costs and delays increase if the lawsuit is successful. Small wonder that developers look for ways around CEQA.
The California initiative process allows for project approval either because a city council decides to adopt the initiative as written or because it is submitted to the voters who vote in favor of the initiative. It has been the law for over a decade that a project that is proposed through the initiative process and approved by the voters is not subject to CEQA. This has led several developers, including Wal-Mart, to use the initiative process to get their project approved. Wal-Mart scored a significant victory in 2014 when the California Supreme Court held that CEQA wasn’t implicated when the proposed initiative was adopted by a city council. In that case, Wal-Mart proposed, and the city council adopted, a specific plan that authorized the expansion of an existing Wal-Mart store.
Other developers have followed Wal-Mart’s lead. For instance, Moreno Valley’s City Council adopted an initiative that approved a 40,000,000 square foot logistics facility in November, 2015. However, the opposition’s responses demonstrate that the use of the initiative process isn’t a silver bullet. First, opponents attempted to get enough signatures on a referendum petition to overturn the Council’s adoption of the initiative. That worked in 2015 in Carlsbad when a referendum overturned the council’s approval of a proposed shopping center. When the opponents couldn’t get enough signatures to put a referendum on the ballot in Moreno Valley, four lawsuits were filed in February 2016 attacking the Council’s action. A Riverside Superior Court judge ruled in favor of the City in September 2016. That judgment is now on appeal.
Nor should it be assumed that a city council will automatically adopt an initiative. Land use is political and a council may, or may not, be willing to take responsibility for approving a project by adopting the initiative. The alternative is to put the initiative on the ballot to let the voters decide. Such initiatives were on the ballot in Beverly Hills, Cupertino, Cypress, and San Diego County in November 2016. All were rejected by the voters.
The bottom line? There is a way around CEQA, but it’s neither guaranteed nor cost free. Nevertheless, the use of the initiative should be considered for a substantial project.
. . . there’s something new on “Reverse CEQA.” We discussed in a prior “Lay of the Land” post the Court of Appeal’s decision that the Bay Area Air Quality Management District cannot require an EIR simply because existing air contaminants may impact a project’s future users or residents. The Air District asked the Court of Appeal to reconsider its decision, arguing that it was improper to order the Air District to revise its thresholds to comply with the Supreme Court’s earlier holding that CEQA is ordinarily concerned with a project’s impact on the environment, and not the environment’s impact on the project.
On September 9, the Court of Appeal modified its published opinion to explain further why it rejected the Air District’s arguments. The Court held that the Air District’s thresholds of significance, which suggested a “routine analysis of whether new receptors will be exposed to specific amounts of toxic air contaminants,” needed to be revised “given the clarity of the Supreme Court’s decision that such an analysis oversteps the bounds of CEQA except in specified circumstances.”
The case will now return to the trial court for the issuance of a writ of mandate compelling revision of the thresholds.
In a decision that should provide more certainty for the development of residential infill and transit-oriented projects, the Court of Appeal recently held that the California Environmental Quality Act (CEQA) “cannot be used by a lead agency to require a developer or other agency to obtain an EIR or implement mitigation measures solely because the occupants or users of a new project would be subjected to” contaminant levels above an air district’s thresholds of significance. Because residential infill and transit-oriented projects are often located near existing sources of air quality impacts (freeways, for example), this decision should help ensure that these much-needed housing projects don’t get mired unnecessarily in costly and time-consuming environmental review processes.
The California Supreme Court held last year in CBIA v BAAQMD that CEQA generally applies to a project’s impact on the environment, not the environment’s impact on the project. While acknowledging that CEQA is concerned with human health, the Court agreed with the California Building Industry Association (CBIA) that CEQA’s relevant provisions “are best read to focus almost entirely on how projects affect the environment.” Stretching the definition of “environment” to include the future users of a project would allow CEQA to cover “nearly any effect a project has on a resident or user.” This led the Court to conclude that, generally, any requirement to analyze the “environment’s effects on a project” is invalid.
At the center of the litigation was the Bay Area Air Quality Management District’s “Receptor Thresholds” which sought to measure whether existing air quality issues would impact the future residents of new housing projects. CBIA and affordable housing advocates argued that the Receptor Thresholds discouraged infill housing close to transit because these projects are, by definition, located in urbanized areas where the air quality has already been impacted by existing development. Requiring projects to analyze and mitigate for existing impacts to which those projects did not contribute threatened to prevent much-needed infill development. After resolving the foundational question regarding the purpose of CEQA analysis, the Supreme Court remanded to the Court of Appeal the question of whether the Receptor Thresholds violated the general rule described in its opinion.
On August 12, 2016, the Court of Appeal determined that the Air District’s thresholds were “misleading to the extent they contemplate an application of the Receptor Thresholds to evaluate the effect of the existing environment on all new receptors as a matter of course. . . .”
Though the Court of Appeal identified specific circumstances where the Receptor Thresholds could be validly applied (e.g., in school siting decisions), the Court of Appeal warned that “any effort by an agency to require an EIR, mitigating measures, or other CEQA review under the Receptor Thresholds when one is not authorized would be subject to a strong legal challenge.” To that end, the Court of Appeal held that the Receptor Thresholds cannot be used by a lead agency to require an EIR or to impose mitigation measures solely because the occupants or users of a new project would be subjected to contaminant levels above the Air District’s thresholds.
Existing air quality concerns can, of course, be addressed outside of CEQA. CBIA argued during the litigation that these sorts of concerns can be addressed through substantive rules and regulations. The Air District has recently gotten on board with this approach. The Air District finalized its “Planning Healthy Places” guidance document which recommends that local governments address existing air quality concerns through the Planning and Zoning Law. Planning Healthy Places provides an interactive map of where the Air District recommends projects implement best practices (e.g., air filters) and where, due to complex emissions sources, further air quality studies should be conducted. The Court of Appeal’s decision should result in cities and counties taking a more proactive, plan-level approach to addressing air quality concerns rather than the ad hoc approach previously recommended through the Air District’s Receptor Thresholds.
The need for “reform” of the California Environmental Quality Act is acknowledged by development interests and environmental groups alike. The challenge is that these stakeholders have very different ideas of what that reform should look like. As a result, despite the extraordinary costs of CEQA implementation and litigation, there appears to be little prospect for meaningful CEQA reform from the State Legislature. This article examines whether there is any prospect for meaningful CEQA “reform” from California’s Supreme Court.
CEQA is 46 years old, yet CEQA litigation remains remarkably unpredictable. State and local agencies still cannot be confident that the courts will uphold their actions. The chances that an EIR will be upheld in court remain close to a coin-flip, even lower for a negative declaration. That level of uncertainty remains the great cost of CEQA—greater even than the enormous expense of trying to comply with CEQA.
In the first 40 years of CEQA, the California Supreme Court issued only about 40 decisions interpreting it. Then, a few years ago, the High Court started granting review in CEQA cases at an unprecedented pace. It rather quickly had nine cases on its docket for review. Many commentators speculated that the Court was going to undertake CEQA reform from the bench, perhaps recognizing that the Legislature seemed incapable of coalescing around any meaningful reform.
In the past year, the Court has issued four CEQA decisions, with five more pending. The early returns are mixed in terms of offering newfound certainty. But the Court will have several opportunities in the coming months and years to offer assistance to all participants in the CEQA process by resolving pending cases in a clear and decisive manner.
The Court considered various issues in its decisions over the past year. In Berkeley Hillside, it addressed the standard of review for categorical exemptions and adopted a somewhat tricky two-part test. It also held in City of San Diego v CSUSD that the state university system cannot limit its mitigation measures to those specifically funded by the Legislature, affirmed in Newhall Land that greenhouse gas (GHG) emission impacts can be measured against statewide GHG-reduction targets set out in AB 32, while at the same time finding the State’s GHG analysis lacking. In a key decision addressing CEQA fundamentals, the Court held in CBIA v BAAQMD that CEQA generally applies to a project’s impact on the environment, not the environment’s impact on the project. While some might characterize this decision as “reform by court,” it really reflects a plain reading of the law, rather than reform. Continue reading →
Have you ever been required to have your Mitigated Negative Declaration (MND) or Environmental Impact Report (EIR) evaluate whether your project will be compatible with the “character of the community”? Recently, in a ruling involving a project in the City of Poway, a California Court of Appeal held that the evaluation of potential impacts of a project on “community character” is not required under CEQA unless those impacts are “aesthetic” in nature. The Court carefully distinguished potential aesthetic impacts from those “psychological and social factors” that make residents “feel good and at home.”
In 2013, the Poway City Council unanimously approved a project which would replace a horse boarding facility with twelve homes. An MND was prepared to evaluate the potential environmental impacts of the project. Project opponents asserted that an EIR was required because there was a “fair argument” that elimination of the horse boarding facility would, in the Court’s words, “have a significant impact on Poway’s horse-friendly ‘community character’ as the ‘City in the Country.” The City Council did not require an EIR. Instead the Council approved the project using the MND. Project opponents then sued, the trial court ruled in their favor, and the project applicant appealed.
In Preserve Poway v. City of Poway, the Court of Appeal noted that CEQA’s purpose is to evaluate existing physical conditions which may be affected by a proposed project. The Court carefully distinguished potential physical environmental impacts from potential economic and social impacts which do not cause physical changes and are not required to be reviewed under CEQA. With respect to the question of whether an EIR should have been prepared by the City of Poway, the Court examined the administrative record for substantial evidence to support a fair argument that a significant environmental effect would result from the project’s impact on community character. Continue reading →
The California Supreme Court has scheduled oral argument on three land use and CEQA cases in early May in San Francisco. The Court has generally been moving to clear its calendar of pending CEQA and land use cases, of which there are many, but this is an unprecedented confluence of oral arguments on important cases. The three cases to be argued are as follows:
- Property Reserve v Superior Court, Supreme Court Case No. S217738, scheduled for oral argument on Tuesday, May 3rd at 9:00 am. This case concerns whether requiring onsite geological or environmental testing is a physical taking of private property. The particular onsite testing at issue in this case is for the proposed twin tunnels project in the Delta.
- Friends of the College of San Mateo College Gardens v. San Mateo County Community College District, Supreme Court Case No. S214061, scheduled for oral argument on Wednesday, May 4th at 9:00 am. This case concerns the legal standards that apply when an agency considers a further approval for a project that has already been reviewed under CEQA. The court will decide whether the decision to prepare a further EIR is subject to review under the deferential substantial evidence standard, as most cases have held, or whether the agency must first make a threshold determination whether there is a new project as a matter of law.
- City of Perris v. Stamper, Supreme Court Case No. S213468, scheduled for oral argument on Thursday, May 5th at 9:00 am. This case concerns the determination of which issues are decided by a judge, and which issues are decided by a jury, in an eminent domain case. The specific issue is whether the constitutionality of a city’s dedication requirement is a legal issue, to be decided by a judge, or a factual issue, to be decided by the jury.
The decisions in these three cases should be issued by the court by late July or August.
Less than one week remains to comment on important proposed changes to the CEQA Guidelines that flow from the 2013 adoption of “SB 743.” Once phased in, these Guidelines will change the evaluation of a project’s potential transportation impacts and, if the Guidelines function as the Governor’s Office of Planning and Research (OPR) desires, alter the pattern of California land development. Under the Guidelines, vehicle miles traveled (VMT) will replace level of service (LOS) as the standard a lead agency must measure a project’s traffic impacts. Under the new metric, what was mitigation for traffic impacts, such as the widening of roads, will soon be considered a significant impact. Accordingly, the implications of these Guidelines go beyond the need for traffic engineers to retool their traffic models (itself a complex task).
Of course changing CEQA is bound to be controversial. OPR’s first Guideline proposal generated numerous and diverse comments, reflecting differences among California’s lead agencies’ size and access to transit, and stakeholders’ individual (often ideological) views on transportation. As a result, OPR issued a second set of proposed Guidelines on January 20, 2016, which can be viewed on OPR’s website. Comments on this latest draft must be submitted to CEQA.Guidelines@resources.ca.gov by 5:00pm on February 29, 2016.
Practical Implications of the New Guidelines
OPR proposes to revise Appendix G, which is the heart of the proposed Guidelines. Although Appendix G is provided for guidance only, agencies typically follow it almost to the letter. As proposed, the transportation significance thresholds in Appendix G would eliminate questions related to LOS and instead focus on VMTs, including whether a project would induce additional automobile travel by increasing physical roadway capacity. In addition, OPR proposes technical guidance, to be published as a separate document, to help lead agencies implement the new Guidelines. This technical guidance includes recommended quantitative thresholds and analysis methods for determining the transportation impacts from various types of projects, including residential, retail, office, and roadway development. Following are some of the practical consequences that we foresee resulting from the proposed changes: Continue reading →