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.

U.S. Supreme Court Rules Government Can Be Guilty of Taking When Denying a Land Use Permit or Requiring Monetary Payment as a Condition of Approval

Land developers will find it easier to challenge coercive exactions and unreasonable impact fees requested by governmental authorities during the land use permitting process in the aftermath of the U.S. Supreme Court’s decision in Koontz v. St. Johns River Water Management District, 570 U.S. ____; 133 S.Ct. 2586 (2013).

The Court held that a demand for property from a land use permit applicant as a condition of approval can constitute an unlawful taking even when the government denies the land use permit. It does not matter that the governmental decision-maker might have been able to deny the application outright in the exercise of its discretion. The critical inquiry is whether the proposed condition of approval has a “nexus” and “rough proportionality” between the government’s demand and the anticipated effects of the applied-for land use. If the project applicant rejects the proposed condition because it does not meet the “nexus” and “rough proportionality” tests, the project applicant can bring a lawsuit claiming the government’s condition is tantamount to a taking of its property.

The Court also held that a local government’s demand for money – for example, impact fees – must satisfy the “nexus” and “rough proportionality” tests. In so holding, the Supreme Court took its takings jurisprudence beyond physical or regulatory takings of private property. This portion of the Court’s holding is extremely important because, as local governments find themselves with less money for capital improvements and operations, governmental decision-makers have been tempted to solve fiscal shortfalls with impact fees. The Koontz decision should limit the size of impact fees so that such payments are more closely related to the environmental impacts of development.

The facts of the case were straightforward. Koontz applied for permits to develop a portion of his property from the St. Johns River Water Management District. The District required permit applicants who desired to build on wetlands to offset any environmental damage that might be caused by the proposed development. Koontz offered to deed to the District a conservation easement on nearly three-quarters of his property as mitigation. The District refused Koontz’s offer, stating that it would approve his requested land use permit only if Koontz (1) reduced the size of his development and, among other things, deeded to the District an even larger conservation easement area or (2) hired contractors to improve District-owned wetlands several miles away. Believing the mitigation required by the District for his proposed development was excessive, Koontz filed suit claiming the District’s action was an unreasonable exercise of the District’s police power constituting a taking without just compensation.

The trial court agreed with Koontz, finding the District’s demands failed the requirements of Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994). In Nollan and Dolan, the Court established the rule that government cannot condition the approval of a land use permit on the owner’s relinquishment of a portion of his or her property unless there is a nexus and rough proportionality between the government’s demand and the effects of the proposed land use. The Florida District Court of Appeal affirmed. However, the Florida Supreme Court reversed on the basis that (1) the District denied the application and (2) a local government’s demand for impact fees cannot give rise to a takings claim.

Justice Alito’s opinion for the U.S. Supreme Court reasoned that the unconstitutional conditions doctrine prevents the government from coercing people to give up their constitutional rights. When the government makes extortionate demands in the land use context, the government violates the Fifth Amendment’s Takings Clause “not because they take property but because they impermissibly burden the right not to have property taken without just compensation.”

The Court’s decision will have significant repercussions in permit negotiations and land use litigation at the federal, state and local level. Land developers will have an incentive to document conditions proposed by governmental agencies that may appear to be excessive mitigation in light of a project’s development impacts. Government staff may be reluctant to offer proposed conditions or comment on a developer’s offer of mitigation, fearing that staff are creating a record for future land use litigation. Staff will also have an incentive not to disclose proposed conditions until later in the application review and approval process, perhaps as late as immediately prior to submission to decision-makers in a staff report or other transmittal required pursuant to public meeting laws.

We will likely see an increased emphasis on collecting and analyzing data to properly characterize the potential impacts of a proposed development. Government staff will have an incentive to take their time and be cautious in the design of mitigation measures based on reasoned analysis and the best available science. As a result, project applicants can expect further delays in permit processing as impact studies and reports designing recommended mitigation measures are prepared prior to a formulation of the final conditions of approval. To protect themselves against Koontz litigation, government decision-makers will likely approve a variety of mitigation alternatives in the hope that at least one survives Nollan/Dolan scrutiny.

In California, the Koontz case raises the issue of the appropriate level of scrutiny that a court must use when evaluating the constitutionality of impact fees. In Ehrlich v. Culver City, 12 Cal.4th 854 (1996), the California Supreme Court used different tests to determine the constitutionality of project-specific impact fees as opposed to broadly applicable development impact fees.

A project-specific impact fee is one that is created and sought to be imposed specifically to address the environmental impacts of a particular development proposal. The Ehrlich court applied the Nollan/Dolan analysis to a recreation fee that Culver City sought to impose because the proposed development project was eliminating recreation opportunities in the area.

Broadly applicable development impact fees are enacted by a legislative body in anticipation of new development in a geographic area (sometimes over the entire jurisdiction or more often over a portion thereof) for the purpose of achieving a public policy objective. In Ehrlich, the California Supreme Court declined to apply the Nollan/Dolan test because Culver City’s public art fee was broadly applicable to most new development projects in the City, like other development standards.

Because the Koontz majority opinion does not distinguish between these two types of impact fees, it is questionable that the California Supreme Court’s application of a lesser level of scrutiny to certain types of impact fees in Ehrlich is still good law.