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Yesterday, California voters approved Proposition 51, a $9 billion bond to replenish the State’s school construction fund. Proposition 51 was passed just in the nick of time because, according to the California State Allocation Board (SAB), the State has run out of money for new school construction.

Just last week, despite the outstanding legal efforts of the California Building Industry Association (CBIA) to forestall it, SAB published a notice to initiate significant “Level 3” school fee increases throughout California. The passage of Proposition 51 (for which we can thank CBIA leadership, among others) will replenish the State’s coffers and should provide a defense against the imposition of Level 3 fees. Politics being what they are, however, it remains to be seen whether Proposition 51 will actually induce cash-strapped school districts to drop their guard.

Given the uncertainty surrounding school construction in California, builders are looking for creative alternatives. Just this year, Cox Castle lawyers negotiated two widely-touted developer-built-school deals with districts in the Bay Area (Fremont and Foster City-San Mateo). These highly-specialized transactions can provide great benefits to builders, including assurance of timely delivery of new schools to serve their neighborhoods and the potential for reduced costs in light of the significant upward pressure on statutory school fees. These deals also provide benefits to school districts in the form of state reimbursement of funds from Proposition 51.

These transactions are complex and take time to negotiate. If you or your building or development company are looking for ways to navigate this uncertain regulatory environment, it may be worth your while to consider building a school.

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Forty years after the California Supreme Court addressed vested rights in its oft-quoted “Avco” decision, a simple two-part question often is asked to determine whether, in the face of changes to land use regulations, the right to complete a project has vested: “Has a building permit been issued and has a foundation been poured?” Sometimes, the question is framed “Are there sticks in the air?” There are, however, circumstances where vesting may occur without sticks in the air, the pouring of a foundation, or even the issuance of a building permit. One of those arises under what Avco Community Developers v. South Coast Regional Commission called “rare situations.” Another is where a local ordinance provides its own vesting standards.

Avco Grading-CaptionThe Decision. Avco arose from the 1972 adoption by California’s voters of the Coastal Zone Conservation Act (the “Act”), the precursor to California’s Coastal Act. The County of Orange had approved a final tract map and issued a grading permit for a planned community. The developer began grading, installed subdivision improvements, and incurred substantial liabilities in reliance on the County approvals – all before the effective date of the Act. In the end, the Court concluded that the developer needed a permit from the newly-created Coastal Zone Conservation Commission because building permits for individual structures had not been issued before the Act became effective. This has led to a common, though incorrect, perception that Avco held that in all cases a building permit – and more – is needed to vest a project against changing land use regulations.

The words most often associated with Avco are “if a  property owner has performed substantial work and incurred substantial liabilities in good faith reliance upon a permit issued by the government, he acquires a vested right to complete construction in accordance with the terms of the permit.” Those words, however, did not foreclose a less rigid vesting analysis. The Court also stated that its decision was “not founded upon an obdurate adherence to archaic concepts inappropriate in the context of modern development practices or upon a blind insistence on an instrument entitled ‘building permit’.” The Court even commended the Commission for conceding that a building permit is not “an absolute requirement under all circumstances for acquisition of a vested right”  before noting that there may be “rare situations” where vesting is based upon a different type of approval, one that provides “substantially the same specificity and definition to a project as a building permit.” This crack in the Avco door can lead to an alternative path for acquiring vested rights to shield an approved project from new regulations.

The “Rare Situation.” Not long after Avco, a “rare situation” emerged from the application of changed land use regulations to another Orange County planned development. In San Clemente Estates v. City of San Clemente, a federal bankruptcy judge addressed the vesting of a development for which grading permits had not been issued and building permits applications had not been filed at the time the new laws were adopted. The court concurred with the holding in Avco, but seized upon Avco’s “rare situations” discussion. The court found that the City Council was “intimately familiar with the project,” including details regarding the location, elevation, and appearance of each lot, the type of single family home to be built on each lot, and the specific locations of condominiums, a club house, and an equestrian center. As a result, the court concluded that the City Council knew “exactly what it was approving” and found that the project was insulated from the City’s newly-adopted land use regulations.

Local Ordinances.  The Avco Court also noted that Orange County’s Building Code prohibited issuance of a building permit unless it conforms to “other pertinent laws and ordinances.” The Court saw that language as reflecting “the general rule that a builder must comply with the laws which are in effect at the time a building permit is issued, including the laws which were enacted after application for the permit.”

DP 9.61.040(f)-SnipBut what if local ordinances, as sometimes is the case, expressly counter that “general rule” by providing that a developer has the right to complete a project pursuant to planning and zoning regulations in effect when an application is deemed complete? It is difficult to foresee any situation in which Avco would override the express vesting provisions of local ordinances, such as the example to the right from the City of Dana Point. Therefore, rather than meekly conceding to a rigid application of Avco, it is necessary to evaluate vested rights in the context of sometimes obscure local ordinances which might operate in the developer’s favor.

Without a doubt, Avco is alive and well at age forty. It continues to strongly suppress the vesting of development rights in California. Indeed, there have been harsh applications of Avco which have denied vesting to projects that arguably could have been “rare situation” exceptions. While, in virtually all cases, development agreements will remain the best protection against new land use regulations, developers should be aware that “rare situations” and local ordinances do exist which may present project-saving opportunities. Those opportunities should not be overlooked simply because foundations have not been poured and sticks are not in the air.

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. . . 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.

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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.

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The California Water Commission recently approved new emergency regulations for Groundwater Sustainability Plans (“GSPs”). In addition to substantially affecting groundwater management practices and procedures under California’s Sustainable Groundwater Management Act (“SGMA”), the new regulations are also likely to have a significant economic impact on current businesses and industries, as well as on future development projects.

The new emergency regulations will affect groundwater basins throughout California. SGMA provides a comprehensive approach to the sustainable management of groundwater basins through the development and implementation of GSPs or alternatives to GSPs. The Department of Water Resources has designated 127 groundwater basins as high or medium priority, accounting for approximately 96 percent of groundwater use in California. Although only high- and medium-priority basins are subject to SGMA, agencies overseeing the remaining basins, designated as low or very low priority, are encouraged and authorized to develop GSPs, update existing groundwater management plans, or coordinate with other agencies to develop new groundwater management plans.

The new regulations establish requirements for the development and maintenance of GSPs, such as specific monitoring protocols and standards for data and reporting, including the requirement to develop and maintain a data management system for storage and reporting of relevant information. The regulations outline procedures for submitting, withdrawing, and amending GSPs; notice and public comment requirements; annual reporting requirements to the Department of Water Resources; and initial and ongoing evaluation and assessment of GSPs by the Department. The regulations also authorize two types of interagency agreements: “interbasin agreements,” which allow two or more agencies to establish compatible sustainability goals, and “coordination agreements,” which allow two or more agencies to develop and implement multiple GSPs that utilize the same data and methodologies. Continue reading →

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Looking only at its name, the Fixing America’s Surface Transportation Act (FAST), a long-term funding bill adopted by Congress in late 2015, would seem to benefit only ground transportation projects. For the most part, FAST has been billed as a program that will deliver long-term funding certainty for surface transportation infrastructure investment.

FAST, however, does much more, providing “fast track” environmental review and federal permitting for major infrastructure projects, including renewable and conventional energy, surface transportation, aviation, ports and waterways, water resource projects, broadband, pipelines and other similar projects (those that involve a likely investment of more than $200 million). FAST is designed to increase transparency, require communication between federal agencies and project sponsors, force agencies to provide a timeline for review (and limit their ability to deviate from that timeline), and provide some limits for judicial review (shorter statute of limitations, exhaustion of administrative remedies, and additional findings for preliminary injunctions). The principal benefits of FAST include:

  • Increased Transparency and Agency Cooperation with a Central Online Tracking Database. FAST requires the establishment of a “permitting dashboard” for all covered projects. The permitting dashboard is a searchable online database that will provide the status and schedule of environmental review and permitting tasks for each agency for all the covered projects.
  • Coordinated Environmental Review and Permitting Plan and Schedule. A project must be placed on the permitting dashboard within two weeks of being identified on the inventory of covered projects. Within sixty days after a project is placed on the permitting dashboard, the lead agency must develop a plan for coordinating and completing the environmental review and permitting process. The plan must include a permanent timetable from which the agencies may deviate only under limited circumstances (written justification must be provided and there are limits on how long an extension can be granted). In addition, if a project sponsor requests a meeting to discuss the project, the review and permitting process, or the schedule, the federal agencies are required to meet with the sponsor within sixty days of that request. The lead agency has specific requirements to make relevant information available to other agencies and the project sponsor as early as possible.
  • Development of Project Alternatives. FAST requires the lead agency to engage the cooperating agencies and the public to determine the reasonable range of project alternatives. If an Environmental Impact Statement (EIS) is to be prepared, this process shall be completed no later than completion of scoping for the project. Ultimately, it is up to the lead agency to determine the reasonable range of alternatives.

Continue reading →

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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.

California Supreme Court

The California 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 →

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We previously shared with you the critical role that the late Justice Antonin Scalia played in landmark Supreme Court land use decisions. So now let’s look at how Judge Merrick Garland, President Obama’s current nominee for Justice Scalia’s seat, might shift the ideological leanings of the Court on environmental issues, if confirmed.

President Obama Introduces Judge Garland

President Obama Introduces Judge Garland

Although leading experts are still analyzing Garland’s past opinions to discern his potential influence on future Supreme Court environmental law decisions, there appears to be universal agreement that Garland’s addition would make the Court more likely to defer to agencies’ regulatory interpretations, rulemakings, and rule implementation. In particular, those legal analysts have found consistent deference to actions of the Environmental Protection Agency. As SCOTUSblog noted in 2010, “Judge Garland has in a number of cases favored contested EPA regulations and actions when challenged by industry, and in other cases he has accepted challenges brought by environmental groups.” Indeed, according to Bloomberg, one third of Garland’s dissents have been over challenges to agency decision-making. In all of those dissents, Garland sided with the agency.

UCLA Law Professor Ann Carlson analyzed three important Garland decisions, two majority opinions and one dissent. From these opinions, Professor Carlson deduced that Garland is likely to afford great respect to EPA’s judgment where that judgment is grounded in good science and the public interest. Carlson expects Garland to be likely to defer to the EPA or, where he rules against the EPA, to side with environmentalists on the grounds that the EPA has not gone far enough to enforce the law. Continue reading →

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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.”

No horsing around with “community character.”

No horsing around with “community character.”

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 →

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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.