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.

Legislative Changes to CEQA Ease Requirements for Urban Infill Projects

California lawmakers further streamlined the environmental review of infill residential, mixed-use and “employment center” projects under a new bill passed at the end of the legislative session in September.

By way of background, all development projects must comply with the California Environmental Quality Act (“CEQA”) prior to project approval. Under CEQA, state and local agencies must identify the significant environmental impacts of a proposed development project and avoid or mitigate those impacts, if feasible.

Senate Bill 743 was initially intended as a CEQA streamlining bill for a new sports and entertainment arena for the Sacramento Kings, an NBA team at risk of being lured away by another U.S. city. Legislative leaders and the business community have been asking for broader CEQA reform, because the environmental review process is time-consuming and fraught with litigation risk for developers and local governments. After last minute talks among the Governor and legislative leaders, the bill was amended to begin to ease requirements for certain classes of urban infill projects statewide.

The most significant changes:

Inadequate parking and aesthetic impacts cannot be used to challenge a project under CEQA if the project is “on an infill site within a transit priority area.” An “infill site” is a previously-developed lot in an urban area or a vacant lot largely surrounded by urban uses. A “transit priority area” includes any area within a half mile of an existing or planned “major” transit stop. As stated, this exemption applies only to challenges brought under CEQA. A project must still comply with other existing (or future) laws that apply to aesthetic or parking impacts. There is also a backdoor for a CEQA challenge based upon “impacts on historic or cultural resources” that result in a significant impact.

New guidelines will be developed to determine the significance of transportation impacts of projects in transit priority areas. These new guidelines must promote the reduction of greenhouse gas emissions, the development of multimodal transportation networks, and a diversity of land uses. To that end, OPR must recommend potential metrics that move away from the level of service standards most frequently used in traffic studies and instead focus on vehicle miles traveled, vehicle miles traveled per capita, automobile trip generation rates or automobile trips generated, among other metrics.

Automobile delay, “as described solely by level of service or similar measures of vehicular capacity or traffic congestion,” shall not be considered a significant impact on the environment under CEQA. This is a huge benefit for project proponents, since many projects wrestle with traffic delay issues at intersections near or adjacent to their proposed projects. Some land use practitioners may point out that the state’s Office of Planning and Research (“OPR”) may promulgate regulations that limit the scope of this carve out in “locations specifically identified in the guidelines, if any.” However, State Sen. Darryl Steinberg has indicated his desire to see OPR move away from level of service standards and the Governor is likely on the same page, which should influence OPR’s rulemaking. In addition, any rulemaking must comply with California’s Administrative Procedures Act. OPR’s rules will need evidentiary support if it makes distinctions between “locations” and the metrics applicable to different locations. We will have to wait and see how OPR handles these issues when the regulations come out, but if specific locations are identified, expect APA related litigation. In the meantime, developers and land use practitioners should note that air quality, noise, safety, “or any other impact associated with transportation” may still rise to a level of significance and be the subject of a CEQA challenge.

The adequacy of parking for a project shall not support a finding of significance. Presumably, this exemption applies to “transit priority areas,” but does it also apply to “employment center projects” and “infill site[s]” that are also a subject of the “section”? Does it apply more broadly to other projects? This provision of the bill is going to need clarification or it will be litigated.

Residential, employment center, or mixed use development projects in a specific plan area in which a prior environmental impact report (“EIR”) was prepared are eligible for a new CEQA exemption. The exemption applies if (i) the project is in a “transit priority area,” (ii) the proposed project is consistent with a sustainable communities strategy or an alternative planning strategy for which the State Air Resources Board has accepted a metropolitan planning organization’s determination that greenhouse gas emissions targets will be achieved, and (iii) subsequent or supplemental environmental review is not required because of significant new information or substantial changes must be made to the prior EIR’s environmental impact analysis. This provision further eases the requirements that apply to projects that fit within California’s land use/transportation planning legislation focused on reducing greenhouse gas emissions in the state.

Review of “environmental leadership projects” returns to the superior court, as well as appellate court, but both rounds of review must be completed within 270 days. The bill fixes a prior legislative attempt at CEQA litigation streamlining that sought to skip trial court level proceedings for certain consequential development projects certified by the Governor. That law was held unconstitutional earlier this year.

Certain streamlining provisions to CEQA were added for the benefit of a planned entertainment and sports center project in the City of Sacramento. The Legislature continues its practice of granting special exceptions to CEQA for high profile, litigation likely projects.

These changes to CEQA will greatly assist the urban infill projects that qualify. In particular, the elimination of parking and aesthetic impacts as grounds for a CEQA challenge in urban infill areas is particularly welcome. New traffic metrics will bring significant changes to how traffic engineers, land planners and counsel analyze projects and present them in CEQA documents. For developers of projects in infill locations, thoughtful strategic analysis of this new law and its carve outs with counsel is essential.