State Agencies Can’t Say CEQA Mitigation is Infeasible If Earmarked Funds Are Unavailable, High Court Says

When environmental review of a proposed development project by a state agency shows that it will have traffic impacts, a state agency is not allowed to nevertheless approve the project on the grounds that the funds needed to mitigate congestion have not been earmarked by the Legislature, the California Supreme Court has held.

The court’s recent unanimous decision in City of San Diego v. Board of Trustees of the California State University is significant for two important reasons.  First, it is now clear that state agencies cannot shift the costs of off-site environmental mitigation of their projects to local and regional governments, except in very limited circumstances.  Second, the use of a “statement of overriding considerations” by the legislative body of a lead agency will not be given deference by the courts if potential mitigation measures are not “truly infeasible.”

The Board of Trustees of the California State University sought to expand the campus of San Diego State University (“SDSU”) to accommodate more than 10,000 additional students over the next several years.  The environmental impact report for the project showed that it would contribute significantly to traffic congestion off-campus.  Although the Board of Trustees budgeted more than $9.9 billion for campus expansion efforts, the Board of Trustees declined to use those funds, or any of the California State University’s other financial resources, to reimburse other local governments for SDSU’s fair share of the cost of mitigating its project’s off-campus environmental impacts.  The Board of Trustees maintained that it was not required by law to pay for mitigating a project’s environmental effects unless the Legislature made an appropriation for the specific mitigation measures required.

In other words, if the Legislature did not make an earmarked appropriation for specific environmental mitigation, the Board of Trustees argued that it could take the position that mitigation was infeasible and the Board of Trustees could adopt a statement of overriding considerations and approve the project.  A “statement of overriding considerations” is a legal tool under the California Environmental Quality Act (“CEQA”) that allows a reviewing public agency to approve a project because it offers non-environmental benefits that outweigh its unmitigated significant environmental effects.

The California Supreme Court rejected the Board of Trustees’ argument.  The Board of Trustees is not limited to earmarked appropriations to mitigate the environmental effects of its projects.  Indeed, the Board of Trustees must use other available sources of funding to comply with CEQA’s mandate.

The court acknowledged that CEQA permits a lead agency to determine that mitigation measures necessary to avoid a project’s environmental effects are within the responsibility and jurisdiction of another public agency. However, the ability to shift the burden to another agency is strictly limited:  a lead agency may disclaim responsibility “only when the other agency said to have responsibility has exclusive responsibility.”  When the other agency doesn’t have exclusive responsibility, then the lead agency must share the economic costs of mitigating environmental impacts on regional infrastructure.

The high court gave several reasons for requiring cost sharing, but two bear repeating here.  First, nothing in CEQA says or even suggests that funds appropriated by the  Legislature for a project’s overall budget cannot be used for environmental mitigation.  Second, CEQA does not condition or limit the duty of a state agency to mitigate its project’s environmental impacts on the Legislature’s grant of a specific, earmarked appropriation.

The court also pointed out that the Board of Trustee’s position was unreasonable and impracticable. If a lead agency proceeds with a project without paying for the needed mitigation, the cost of addressing the project’s impacts on local infrastructure would be shifted to local and regional governmental agencies.  Under state and federal law, local and regional governments have limited tools to raise funds for local infrastructure projects.  Developer impact fees must be roughly sized to the impact of each developer’s project. Any “gap” in funding not covered by developer impact fees for needed infrastructure would require local government to draw on its general fund or increase taxes.  Thus, in this case, the City of San Diego would be put in the uncomfortable position of solving issues caused by the SDSU project.   Neither CEQA, nor any other state statute identified by the Board of Trustees, gives the California State University the authority to shift its share of the costs of infrastructure improvements to local governments.

This case also reinforces the California Supreme Court’s limits on a lead agency’s use of a statement of overriding considerations to approve a project notwithstanding its significant environmental effects. The court repeated from its decision in City of Marina v. Board of Trustees of California State University: “CEQA does not authorize an agency to proceed with a project that will have significant, unmitigated effects on the environment, based simply on a weighing of those effects against the project’s benefits, unless the measures necessary to mitigate those effects are truly infeasible.”  This “truly infeasible” standard, reaffirmed by the high court, underscores that a mere balancing of “overriding economic, legal, social, technological, or other benefits of the project” against the significant effects on the environment is not enough.  To adopt a statement of overriding considerations, a specific finding in the record that identified mitigation measures or alternatives are infeasible because of “specific economic, legal, social, technological, or other considerations, including considerations for the provision of employment opportunities for highly trained workers” is required.

CEQA is not only a procedural statute.  Many provisions of CEQA have as their focus the preparation of environmental documents to inform the public and decision makers of the significant environmental impacts of proposed projects.  However, as this case makes clear, CEQA’s “substantive” limitations on the powers of state agencies and local legislative bodies to make decisions should not be overlooked.

Court Protects CEQA Categorical Exemptions by Limiting Unusual Circumstances Exception

Real estate developers who have opponents alleging that CEQA exemptions are unavailable to them because the environmental impacts of their projects alone are unusual won an important victory this week in the California Supreme Court.  Even if a project has negative environmental impacts, a categorically exempt project is spared from CEQA review so long as the project itself is consistent with the class of projects that typically qualify for the exemption, the Court held.

The Court’s holding is an important victory for developers and public agencies. Both will have an easier time relying on so-called “categorical exemptions,” which exempt a proposed project from California’s Environmental Quality Act (“CEQA”).  Categorical exemptions are classes of projects that are exempt from complying with the environmental study procedures of CEQA because, as a policy matter, the projects are unlikely to have a significant impact on the environment.  Developers and public agencies rely on categorical exemptions to streamline the processing of projects and more efficiently use public resources on other projects that are likely to have significant environmental effects.  Project opponents, on the other hand, often seek to disqualify a project from using a categorical exemption so that CEQA review is required.

Berkeley Hillside Preservation v. City of Berkeley concerns a property owner who sought approval to build an almost 6,500 square foot house with a separate 10-car garage on a steep, wooded slope in the hills of Berkeley, California.  The homeowner claimed that the project was exempt from environmental review because it qualified for two “categorical exemptions:” one for single family residences and another for in-fill development projects.  The City of Berkeley agreed with the owner and approved the project.

Opponents of the project sued, arguing that the homeowner’s claimed categorical exemptions could not be used because an “exception-to-the-exemption” in the state’s CEQA regulations says:  “A categorical exemption shall not be used for an activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.”  This “unusual circumstances” exception-to-the-exemption attack is frequently used by project opponents in an attempt to “backdoor” a project into CEQA review.

In this case, the argument was over how to interpret the text of the unusual circumstances “exception-to-the-exemption.”  Opponents were able to persuade the lower courts to hold that the fact that a proposed project may have a significant impact on the environment is itself an unusual circumstance that renders a categorical exemption inapplicable.  Fortunately, the California Supreme Court did not accept that interpretation, reasoning that opponents and the lower courts did not give meaning to all of the words in the exception:  the significant effect must be due to unusual circumstances.

Going forward, if a project opponent sues arguing that the “unusual circumstances” exception applies, a reviewing court must apply a two-step inquiry. First, a court must determine whether a particular project presents circumstances that are unusual for projects in the class described in the categorical exemption.  In making this evaluation, the court applies a “substantial evidence” standard of review.  After resolving all evidentiary conflicts in the public agency’s favor and indulging in all legitimate and reasonable inferences to uphold  the finding, the court must affirm the agency’s decision if there is any substantial evidence, whether contradicted or uncontradicted, to support it.

In light of this first prong, developers and public agencies will do best to place in the record evidence and reasoning showing how the project under consideration is typical for its class.  Project opponents may introduce evidence in the record that the environmental effects of the proposed project tend to show that the project is unusual for its class; however, that evidence alone is not dispositive of the issue. Therefore, it is crucial for the public agency to make a specific finding of fact that the project does not present “unusual circumstances.” A specific finding made by a public agency in light of the evidence in the record will be entitled to great deference at this step in the analysis. This is important, because if a person relying on a categorical exemption prevails on the first prong of the test, the inquiry ends.

The second prong of the test is whether there is a reasonable possibility that the unusual circumstance will produce a significant effect on the environment.  In making this evaluation, the court reviews the record.   If substantial evidence supports a “fair argument” that there is a reasonable possibility of a significant effect on the environment due to the unusual circumstance, then the “exception to the exemption” would be triggered.  The claimed categorical exemption cannot be used to exempt the project from CEQA review.

The “fair argument” standard should be familiar to CEQA practitioners. It is the same standard under which an agency must prepare an EIR whenever substantial evidence in the record supports a fair argument that the project may have a significant effect on the environment.  The “fair argument” standard has killed many negative declarations prepared by public agencies that may not have relied on a carefully prepared record of decision.

The Court’s decision in the Berkeley Hillside Preservation case was eagerly awaited by CEQA practitioners.  Its impact will be felt not only in the single family residential and urban infill context, but also in every case in which a categorical exemption is relied upon by a project applicant and a local government body.

Land Use Approvals in California Can Avoid CEQA If a City Directly Adopts a Voter Land Use Initiative

A city need not conduct an analysis of the potential environmental impacts of a proposed development if it chooses to directly adopt a voter-sponsored initiative for the project.

For developers of projects that are popular but likely to be challenged by a small minority, the California Supreme Court’s decision in Tuolumne Jobs & Small Business Alliance v. Superior Court is good news.  A popular project can skip the preparation of an Environmental Impact Report (EIR) or other environmental document pursuant to the California Environmental Quality Act (CEQA).  This strategy saves time and money in two ways.  First, developers can save months – sometimes years – waiting for a city to prepare technical studies analyzing the environmental impacts of proposed projects.  These studies are almost always prepared at the developer’s expense.  Second, if there is no CEQA document, there is no CEQA litigation.  The cost and delays that result from CEQA litigation are avoided.  As a result, project opponents have one less arrow in their quiver to try to delay or kill a project by filing a CEQA lawsuit.

The facts of the case are straightforward. Walmart Stores, Inc. (Walmart) operated a store in the City of Sonora.  Walmart sought to expand the store in order to convert it into a “Supercenter,” which would sell groceries and be open 24-hours every day.  The city circulated for public comment a draft EIR for the expansion.  After a hearing, the city’s planning commission recommended to the City Council that the EIR be certified and the project approved.

Before the matter was heard by the City Council, a citizen served the city with a notice of intent to circulate an initiative petition. The “Walmart Initiative” proposed to adopt a specific plan for the contemplated expansion. The City Council postponed its vote on the EIR and project approval while the initiative petition circulated. The petition was signed by more than 20 percent of the city’s registered voters, qualifying it for the ballot.

Under California law, when a city council receives a voter initiative petition with sufficient signatures, the city is required to do one of the following: (1) immediately adopt the initiative without change; (2) immediately submit it to a special election; or (3) order the preparation of a report within 30 days, which the city council uses to decide whether to adopt the initiative or submit it to a special election. In Tuolumne, the City Council ordered that a report be prepared to examine the initiative’s consistency with previous planning commission approvals for the Walmart expansion. At its next meeting, the City Council considered the report and adopted the proposed initiative as an ordinance without further complying with CEQA.

The Tuolumne Jobs & Small Business Alliance sought a writ of mandate, claiming, among other things, that the City Council violated CEQA by adopting the ordinance without first conducting a complete environmental review.  The trial court denied the CEQA claim.  The Court of Appeals reversed, holding that when a land use ordinance is proposed in a voter initiative petition, full CEQA review is required if the city council adopts the ordinance rather than submitting it to an election.

The California Supreme Court disagreed. CEQA does not apply to a city council’s action to adopt a voter-sponsored land use initiative. The language and legislative history behind the Elections Code statutes did not support the proposition that the city was required to comply with CEQA before adopting the voter-sponsored measure.

The project opponents argued that “developers could potentially use the initiative process to evade CEQA review, and that direct adoption by a friendly city council could be pursued as a way to avoid even the need for an election.” While that may be true, the Supreme Court was not convinced: “The initiative power may be used to thwart development [too]. . . . The process itself is neutral. The possibility that interested parties may attempt to use initiatives to advance their own aims is part of the democratic process.” What’s more, California’s election laws offer another protection from overreaching by the city: the referendum power. If voters disagree with a city council’s adoption of a voter-sponsored initiative, they can file a referendum petition and a vote to block the enactment of a land use measure.

The Tuolumne case can be an effective tool when both a city council and the public support a popular development project. However, a well-thought-out legal and political strategy is crucial for success. For example, a city must still hold a public hearing before adopting the voter measure, affording the public an opportunity to be heard. How city council and the developer prepare for this hearing is important. Wise city council members will order a report to help develop a record in support of their decision and to show that they have considered countervailing arguments. In addition, environmental protections are still afforded by California’s other environmental laws and regulations. It is crucial to develop a plan for project approvals that must be obtained from other regulatory agencies that may have permitting authority over the proposed project. Indeed, CEQA compliance may still be required in order to obtain permits or approvals from state agencies or other governmental authorities. Developers do not get a “free pass.” Before using the Tuloumne strategy, developers should consult counsel to understand the legal and political risks.

 

Park District Need Not Comply with CEQA Prior to Taking Private Property

A local government agency may start the process for condemning private property without first complying with the California Environmental Quality Act (“CEQA”), a California appellate court has held. Golden Gate Land Holdings, LLC v. East Bay Regional Park District (1st Dist. 2013).

The East Bay Park District (the “District”) proposed to take 2.88 acres of private property in fee title and a 4.88 acre perpetual, non-exclusive easement “. . . in order to construct, operate, and maintain a recreational trail . . . to be used by the general public for hiking, bicycling and equestrian use and other related uses.” The District authorized its special counsel to commence the proceedings necessary to acquire the property in the District’s name. The District filed a notice of exemption under CEQA stating that the District “has approved this project and found it to be exempt from CEQA.” The notice of exemption provided: “The subject parcels are being acquired for the purpose of open space protection and future public access.” As for the stated reasons why the project was exempt from CEQA: “This project consists of the acquisition of land in order to protect open space and to secure future public access to [Eastshore Park] and the . . . Bay Trail. . . . Any development of this property and land use changes would be subject to future CEQA review.”

The property owner filed a court action, asserting that the District had violated CEQA and the eminent domain law. The trial court found that the District had approved a CEQA “project” — which consisted of both the proposed acquisition and the proposed trail improvements. For CEQA purposes, addressing the two parts separately would be improper piecemealing of the project, the court reasoned. The proposed improvements are sufficiently definite given the District considered three options for a trail site, selected one, has a design and price estimate for the improvements, and is now initiating the condominium proceeding. Nevertheless, the court determined that a public agency is permitted to initiate condemnation proceedings with “actual acquisition” conditioned on CEQA compliance. As a result, the court allowed the District to proceed with its eminent domain action before complying with CEQA, requiring the District to vacate only that portion of its resolution that provided that the project was exempt from CEQA.

The court of appeal turned quickly to the essential question: “when an EIR must be prepared in a case where CEQA and eminent domain law intersect.” Some California authorities suggest that CEQA review must be completed before a condemnation proceeding is started. However, the appellate court declined to follow those authorities. Instead, the appellate court held that a trial court did not have to vacate the entire resolution of necessity (a first step in an eminent domain proceeding) but could order a lesser remedy and vacate only a part of the District’s action. The appellate court relied on state statutes and equitable principles to give the trial court flexibility to fashion an appropriate remedy. Also, the court found “no evidence that, by continuing its eminent domain proceedings, the District was going to be prejudiced in its ‘consideration or implementation of particular mitigation measures or alternatives to the [proposed improvements].”

The District dodged a bullet in this case. When the appellate court agreed with the trial court that the District did not comply with CEQA, it should have been “game over” — particularly when the trial court found that the acquisition of the property was part of the CEQA “project”! Even so, court of appeal held that the condemnation proceeding could continue. In my view, once the case was framed as whether a trial court had power and authority to fashion a narrowly tailored remedy, the property owner had an uphill battle. Courts are generally reluctant to limit their powers, particularly when the power that is being limited is one that allows a trial court to fashion a remedy that looks like judicial restraint. Nevertheless, CEQA played a big role in this case and it is a warning to local governments. Counsel for landowners will argue that this case continues the trend: public agencies must comply with CEQA before fully implementing a public project, even one that may have an “environmental benefit” like a park or trail. Counsel for local governments may be tempted to see this case as providing an “escape hatch” in litigation, arguing that a court can fashion a narrowly tailored remedy that allows “a portion of the action” to move forward while the local government complies with CEQA on an after-the-fact basis. Of course, CEQA requires analysis of “the whole of an action” and defines a “project” in that manner. When the “portion of an action” is something other than the eminent domain power and its well-developed statutory procedures and rich history in the case law, CEQA may very well require a different result.