On December 13, 2017, the Los Angeles City Council passed and Mayor Eric Garcetti signed a “linkage fee” ordinance that has been in the works for over two years and is projected to bring more than $100 million in annual revenue to the City. The ordinance was published on December 18, 2017.
On September 29th, Governor Brown signed a long-anticipated package of 15 housing-related bills, as summarized in our prior post, “California Legislature Passes Historic Housing Legislation in Effort to Tackle State’s Housing Crisis” (9/22/17). Collectively, these bills constitute the legislature’s farthest reaching action in years to address California’s ongoing housing crisis. Though the bills are expected to make only a small dent in California’s annual shortage of new housing stock, they are, at the very least, a resounding acknowledgment that the state’s housing crisis requires action at the highest level. This post highlights AB 1505, also known as the “Palmer Fix”.
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.
On Friday, September 29th, Governor Brown signed a long-anticipated package of 15 housing-related bills, as summarized in our prior post, “California Legislature Passes Historic Housing Legislation in Effort to Tackle State’s Housing Crisis” (9/22/17). Collectively, these bills constitute the legislature’s farthest reaching action in years to address California’s ongoing housing crisis. Though the bills are expected to make only a small dent in California’s annual shortage of new housing stock, they are, at the very least, a resounding acknowledgment that the state’s housing crisis requires action at the highest level. This post highlights the core bills: SB 35 (which provides a streamlined entitlement process for qualifying projects), and SB 2 and SB 3 (both of which are intended to provide much-needed funding for affordable housing).
In an eleventh hour push at the tail end of the 2017 legislative session last week, California legislators passed a bundle of bills targeted at calming the state’s unprecedented housing crisis. Taken together, the bills address a wide swath of issues affecting housing production and affordability, including: funding for subsidized housing development, requirements for entitlement and permit streamlining, and tools for local and state agencies to enforce local planning obligations. This extensive legislative effort to reform California housing policy stands in stark contrast to the logjam that has vexed Sacramento lawmakers for years, if not decades. While the bills still require the signature of Governor Brown by mid-October, here is a first look at the pending changes to state housing law, including links to each of the bills. Continue reading →
An executive order signed by President Donald Trump in February may have major large impact on the way that wetlands are regulated at the federal level. The executive order rescinds a Clean Water Rule put in place during the Obama administration. To find out how this change could impact wetland regulation at both the federal level and in California, GlobeSt.com sat down with Scott Birkey, partner at Cox, Castle & Nicholson, for an exclusive interview.
GlobeSt.com: How has the Trump administration affected wetland regulations on a federal level?
Scott Birkey: This story is still being written, but the new administration started setting the stage last February when Trump issued an Executive Order asking the two federal agencies that regulate wetlands on the federal level, the Army Corps of Engineers and the Environmental Protection Agency, to review and essentially rescind the Clean Water Rule established during the Obama administration. By many accounts, the Rule expands the scope of those agencies’ permitting jurisdiction over wet features, even those features that arguably wouldn’t be considered wetlands in any normal sense of the word. The real turning point in this saga is yet to come, but we have a pretty good idea of what it will look like. The Order includes a seemingly innocuous paragraph that could trigger sweeping changes in the way wetlands will be regulated at the federal level. It requires the agencies to interpret the phrase “navigable waters” consistent with the views of Justice Scalia, who relied on Webster’s dictionary to conclude “waters” are “relatively permanent, standing, or continuously flowing bodies of water.” Compared to the Clean Water Rule and all other prior iterations of the wetland regulations, this view reflects a significant restraint on the agencies’ wetlands permitting authority.
GlobeSt.com: How might this affect the Obama administration’s Clean Water Rule?
Birkey: The wheels are already in motion to jettison and replace the Obama-era Clean Water Rule with regulations that would significantly restrain the federal government’s scope of permitting authority over the fill of wetlands. What’s somewhat ironic is that the Clean Water Rule emerged to help clarify, at least ostensibly, the confusion created by a string of well-known wetland regulation cases decided by the Supreme Court. As a practical matter, I doubt that Scalia’s more commonsensical approach to defining “waters,”—which in turn establishes the sideboards for the agencies’ jurisdictional reach—will itself be that easy to implement, regulate, or enforce. We’re sure to see more litigation over this wordplay. This all may sound inane, but the fact is that tagging the phrases “navigable waters” or “waters of the United States” to wet features on a piece of property proposed for development can saddle that project with permitting hurdles that could result in significant time delays and costs.
GlobeSt.com: What does this mean for wetland regulations in California?
Birkey: I and others have written elsewhere that the guiding principle here is nature abhors a vacuum. What we’re likely to see is the state becoming more emboldened to fill regulatory gaps created by the new federal administration’s pullback from regulating wetlands. This is almost a certainty, given that the state has been working for over a decade on a set of wetland regulations that would specifically apply to those wetlands that are not classified as federal “waters of the United States” subject to permitting authority under the Clean Water Act. The State Water Resources Control Board issued a preliminary draft of the regulations in July 2017. The Board anticipates approving the regulations by winter 2017, which under normal circumstances is fairly aggressive in light of the controversy the regulations have generated, but because of the federal pullback from wetland regulations, that timeframe could be an almost certainty. Put simply, this federal pullback likely will result in a state pushback, where California acts more aggressively to ensure the wetlands left behind after Trump’s re-write of the wetland regulations will be regulated by the state.
GlobeSt.com: Can we expect another layer of regulatory oversight in the state?
Birkey: Absolutely, and that’s really the point of the state’s new wetland regulations. To be fair, the state previously has had the ability to regulate wetlands deemed “waters of the state.” But the state’s new wetland regulations will create a permitting mechanism almost identical to the federal permitting regime, mirroring the relatively onerous and time-consuming protocols currently used by the Corps to process wetland fill permits. So, for example, we can expect to see the state requiring applicants to justify their project is the “least environmentally damaging practicable alternative,” or “LEDPA,” an almost magical, albeit clunky, formulation that’s needed before a wetland fill application can be approved. The process to reach this determination requires significant documentation and environmental analysis, including a boundary delineation of the wetlands, an assessment of off-site and on-site alternatives to the proposed project, a review of the project’s other environmental impacts, and a description of compensatory mitigation to offset the project’s impacts. This level of processing and documentation is a sea change from what we’re used to seeing in the state. And so, from that perspective, the new regulations are effectively another layer of regulatory oversight in the state.
GlobeSt.com: How will this regulatory change affect developers with ongoing projects, and what do developers need to know?
Birkey: The draft regulations include a placeholder for their effective date, and so we don’t know yet when they’ll apply. For developers with projects proposing wetland fills after the effective date—get ready! You’ll see a new and heightened level of state agency scrutiny bringing with it increased compliance costs and time delays. Those of us familiar with the Corps’ permitting process know how onerous it can be to obtain a Section 404 permit—think wetland delineations, application forms, environmental review compliance, alternatives analyses, mitigation proposals. Imagine a nearly identical process at the state level. Another troublesome aspect is that it’s not yet clear how the new regulations will apply to projects that are also subject to the federal wetland permitting process. For some projects, there could be an inefficient duplication of agency efforts where, to give an extreme example, an applicant may be required to produce two alternatives analyses—one for the federal permitting effort and another for the state. This example and others I could give suggest we’re likely to see analysis inconsistencies and agency confusion as the new regulations roll out. Not helpful for a state still struggling to meet housing and other construction demands.
The Trump administration has been busy chipping away at Obama-era regulations. As of July 2017, Donald Trump has issued over forty Executive Orders and dozens of Presidential Memoranda and Proclamations. The intent of many of these is to remove regulatory burdens on developers, the agriculture industry, and business more generally. One of Trump’s primary targets has been environmental regulations, and wetland regulations in particular have been in the crosshairs. Trump has followed through on a campaign promise to revisit – with an eye toward rescinding – the Obama administration’s Clean Water Rule. That federal pullback from wetland regulations may have unintended consequences in California, which is on the cusp of promulgating new wetland regulations of its own.
From their very inception, federal wetland regulations promulgated pursuant to the Clean Water Act have been a target of controversy and consternation. No one on either side of the spectrum has been happy, and standing in the middle of this regulatory angst are the U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers, the two agencies tasked with regulating the fill of wetlands for development pursuant to the Clean Water Act. As with most controversial regulations, the wetland regulations evolved over the years, swinging like a pendulum from protective to not-as-protective, as a result of litigation brought by environmentalists and industry interests.
But the real twists and turns of this saga have been punctuated by sporadic pronouncements by the U.S. Supreme Court.
The Court’s most recent decision on wetland regulations came in the form of a fractured opinion in which no majority view emerged. That case, Rapanos v. United States, involved a challenge to the Corps’ determination that a permit was required to fill wetlands slated for development of a mall. The landowner argued that the Corps was overreaching and had no jurisdiction over his wetlands because they were not “waters of the United States,” a term of art that once applied to a wetland gives EPA and the Corps the ability to exercise their permitting authority. The U.S. Supreme Court gave us little to no unifying guidance on what constitutes “waters of the United States.” Of crucial importance now, however, is the plurality opinion authored by the late Justice Antonin Scalia. Citing Webster’s New International Dictionary: Second Edition, Justice Scalia adopted a literal approach to the definition of “waters of the United States,” and declared that the agencies’ jurisdiction under the Clean Water Act includes only relatively permanent waters and wetlands with a continuous surface connection to relatively permanent waters.
In the wake of Rapanos, EPA and the Corps provided some informal guidance to landowners and developers on how the agencies would apply the Rapanos decision. The Clean Water Rule adopted by EPA and the Corps in 2015 emerged from this guidance and from efforts by the agencies to evaluate proposed definitions of “waters of the United States.” The Rule was controversial from the beginning, and it quickly became enmeshed in litigation because of its (both real and perceived) expansion of the agencies’ jurisdiction. The Rule soon became a political target as the 2016 election year got into full swing. Trump fully embraced the issue, and said on the campaign trail in May 2016 that “we’re going to rescind all the job-destroying Obama executive actions including . . . the Waters of the U.S. rule.”
That promise was fulfilled on June 27, 2017. In response to an Executive Order issued by Trump earlier this year, EPA and the Corps formally announced the proposed rescission of the Clean Water Rule and re-codification of the regulations that existed prior to the Rule. According to the Federal Register Notice announcing the rescission, the agencies intend to follow this action with formal rulemaking to “conduct a substantive re-evaluation of the definition of ‘waters of the United States.’” Thus far, no hard-and-fast timeline has been offered for when that proposed “re-evaluation” will be available.
We may not know when it will be available, but we have a good idea of what it will look like. Trump’s Executive Order previewed the substance of the new definition. The Order makes it clear: the agencies must take into consideration Justice Scalia’s opinion in the Rapanos case. This means it is likely the new definition will focus on more literal interpretations of “waters,” which in turn means a much more narrow view of EPA’s and the Corps’ scope of jurisdiction under the Clean Water Act.
In short, the new rule likely will reflect a significant federal pullback on regulating wetlands.
What does this mean for wetland regulations in California? This question is particularly relevant now because a federal pullback on wetlands regulations is sure to contribute to a perfect storm of events currently unfolding in Sacramento.
For over a decade, the State Water Resources Control Board has been working on a wetland protection and regulation policy to address some of the uncertainty created at the federal level by the U.S. Supreme Court. Rapanos and other Court decisions, most notably Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, or “SWANCC,” created “gaps” in the overall regulation of wetlands by establishing the bright line rule that intrastate, non-navigable, and isolated waters are not “waters of the United States” subject to EPA’s and the Corps’ jurisdiction. Instead, these waters are considered “waters of the State of California,” or simply “waters of the State,” and they are subject to a separate permitting regime established by the State’s Porter-Cologne Water Quality Control Act.
The State Board’s draft wetland policy – recently renamed the State Wetland Definition and Procedures for Discharges of Dredged or Fill Materials to Waters of the State – is a quantum leap in the Board’s wetlands permitting and regulation regime. As its title suggests, the policy proposes a formal definition of “wetlands,” which is not currently defined or applied with any consistency across the natural resource statutes in California. In addition, the policy proposes a permitting process that mimics the onerous, costly, and time consuming process used by the Corps for authorizing wetland fill under the Clean Water Act.
A 2016 draft of the policy received numerous comments objecting to the State Board’s proposed definition of wetlands and permitting process. Notably, the U.S. Army Corps of Engineers raised serious objections to the State Board’s putative authority to issue the policy, citing federal preemption and issues related to the policy’s consistency with its own wetland permitting program under the Clean Water Act. Other commenters raised issues related to the definition of wetlands being too vague, arbitrary, and irrationally expansive, and the process for permitting wetland fills as being too cumbersome and costly.
The State Board responded to these comments and issued a revised draft of the policy on July 21, 2017. Unfortunately, many of the issues raised by the commenters remain unresolved. The Board’s timeline for final approval of the policy is aggressive, particularly given what will likely be a controversial and highly charged approval process. According to its website, the policy is expected to be adopted by the Board sometime “Winter 2017.”
What may motivate the State Board to meet this aggressive timeline, and to charge ahead with a policy many view as vague, onerous, and duplicative, is the federal wetland regulations pullback. In effect, the federal pullback may be responsible for a California pushback.
Nature abhors a vacuum. As the Trump administration narrows the federal government’s ability to regulate wetlands, the State Board may use its new wetland policy to fill the regulatory void that will be created. It can be dangerous to prognosticate too much, but in light of California’s generally pro-environmental politics, one thing is virtually certain – the State will be emboldened to fill the “Trump Gap,” as some of us in the industry have been referring to it, as the federal government begins to pull back from wetland regulations. Somewhat ironically, in California we can expect yet another layer of regulatory oversight as a result of this federal pullback. Stay tuned.
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.
As we have done for the past eight years, the Retail Group of Cox, Castle & Nicholson LLP has, once again, taken on the daunting task of forecasting what to expect in the forthcoming year in four critical segments that affect the retail industry. In doing so, the Retail Group analyzed the social, political and economic events of 2016, reviewed various economic data and projections and have come to certain opinions relating to the retail industry and where it is heading in 2017. Below is a product of their thinking, in the form of four articles of interest addressing such topics as capital markets, retailing, retail development and the impact of residential development on retail. If you would like to read the content of the report, click the links below.