New Sea Level Rise Policies Will Have A Major Impact on California Coastal Development

The California Coastal Commission adopted this week a new, major statewide policy document to help guide its decision-making when analyzing the impact of sea level rise on new permit applications and coastal land use plans.

The nearly 300-page policy document analyzes current science, technical information and best practices in a single resource to help coastal regulators at the state and local level.  While the document is intended by the Commission to guide planning and development decisions, it is advisory and does not alter or supersede existing legal requirements, such as the dictates of the California Coastal Act and certified local coastal programs.  (“Local coastal programs” are the land use regulatory documents prepared in accordance with the Coastal Act that govern land use and development in the coastal zone.)  In practice, the document will likely establish the beginning design or negotiating position with staff, unless project applicants or local governments have a persuasive case that varying from the policy document is warranted.

When should sea level rise issues be evaluated?

Sea level rise should be considered in the project analysis when the project or planning site is:

  • Currently in or adjacent to an identified floodplain.
  • Currently or has been exposed to flooding or erosion from waves or tides.
  • Currently in a location protected by constructed dikes, levees, bulkheads, or other flood control or protective structures.
  • On or close to a beach, estuary, lagoon, or wetland.
  • On a coastal bluff with historic evidence of erosion.
  • Reliant upon shallow wells for water supply.

New 5.5 Foot by Year 2100 Sea Level Rise Standard

The Commission has concluded that the “best available science” on sea level rise projections today can be obtained from the National Research Councils 2012 Report, Sea-Level Rise for the Coasts of California, Oregon and Washington: Past, Present and Future.  For most of California, regulators will be starting with a 5.5 foot sea level rise by year 2100 assumption, as shown in the following table.

Sea Level Rise Projections for California.  Year 2000 as baseline.

Time Period North of Cape Mendocino South of Cape Mendocino
By 2030 -2 to 9 inches

(-4 to 23 cm)

2 – 12 inches

(4 – 30 cm)

By 2050 -1 to 19 inches

(-3 to 48 cm)

5 to 24 inches

(12 to 61 cm)

By 2100 4 to 56 inches

(10 to 143 cm)

17 to 66 inches

(42 to 167 cm)

The policy document recommends that coastal regulators use a precautionary approach by planning and providing adaptive capacity for the highest amount of possible sea level rise.  The Coastal Commission has used for many years a sea level rise assumption of 3 feet when evaluating shoreline projects.  Now, new development and redevelopment will likely have to design and plan for 5.5 foot sea level rise at the property, unless other contrary evidence can be provided to the NRC study or unique coastal processes exist for the property in question.

Selected Sea Level Rise Policy Recommendations

An exhaustive analysis or restatement of the policy guidance document is beyond the scope of this article.  However, real estate owners and developers in the coastal zone should keep the following new Commission policies in mind:

  • Permitting authorities should avoid siting development within areas vulnerable to flooding, inundation, and erosion, so that long-term shoreline protective devices are unnecessary.
  • Continuing a controversial policy, new development and redevelopment generally may not use bluff retaining or shoreline protective devices.
  • Local Coastal Programs should encourage and require redevelopment to be brought into conformance with current sea level rise standards, including removal of seawalls or other armoring.
  • New development should be approved with conditions that require future modification, relocation, or removal of buildings when they become threatened with natural hazards, including sea level rise.
  • Improvements to existing at-risk structures should be limited to basic repair and maintenance. Permitting agencies should not allow property owners to extend the life of such structures or expand-at risk elements of the development, consistent with the Coastal Act.
  • Continuing and formalizing another policy, local coastal programs and coastal development permits should require recorded assumptions of the risk, “no future seawall” conditions, and/or other appropriate mitigation measures that require the private property owner to internalize the risk of developing in the coastal zone.
  • When sea level rise causes the public trust boundary to move inland so that a protective device that was located on uplands becomes subject to the public trust, the property owner should either obtain permission from the applicable governmental agency or apply for a permit to remove the encroachment.
  • For impacts to sand supply or public recreation due to sea walls or revetments and the loss of sandy beach from erosion in front of shoreline protection devices, require commensurate in-kind mitigation, a sand mitigation fee, and other necessary mitigation fees.

This is only a small sample of the issues raised by the sea level rise policy document. Before seeking a coastal development permit on or near the shoreline, property owners should carefully review the policy guidance document with counsel.  Going forward, project costs will likely be increased – both at the planning and design stage and at the construction stage.

In addition, this policy document is the most recent policy pronouncement that coastal regulators may use to pursue so-called “managed retreat” of private development so that a public shoreline can come into being over time as sea levels rise.  As the policy document points out, federal and state takings law may be triggered in the particular case.

These new changes will have a significant impact on future permitting in the coastal areas of California. We will see how these new policies are implemented by state and local government and, if necessary, challenged by real estate owners and developers.

California Cities Can Require Developers to Build and Sell Affordable Housing in Their Projects

Local governments may enact laws that require all new residential development projects of 20 or more units to sell at least 15 percent of the for-sale units at a price that is affordable to low or moderate income households, the California Supeme Court has held.

The case marks a defeat for the California Building Industry Association (“CBIA”), who sought to invalidate San Jose’s inclusionary housing ordinance on the basis that the law was an unconstitutional condition in the form of a development exaction under the takings clauses of the United States and California constitutions. An “inclusionary housing ordinance” is a law that requires a developer to construct and offer affordable housing as a part of its proposed development project. The case is California Building Industry Ass’n v. City of San Jose, decided June 15, 2015.

The decision is significant for cities and counties as they grapple with the limited amount of affordable housing in the state. Many cities and counties are now expected to follow San Jose’s example and adopt laws imposing affordable housing requirements on for-sale development in their jurisdictions. The imposition of affordable housing requirements on new for-rent housing is limited by the Costa-Hawkins Rental Housing Act, a 1995 state law.

For developers, the decision is another example of the tough legislative requirements imposed on new developments in California.  Developers of large scale projects have often had to deal with cities and counties demanding that in return for long term vested rights to build their projects, the developer is required to provide a percentage of affordable housing in the overal project. Now, not only can cities and counties bargain for a required percentage of affordable housing in development agreements, they can mandate it as law on projects as small as 20 units (and perhaps fewer!). Developers in cities and counties that adopt such laws will now need to include in their pro formas the cost of building, offering and selling affordable units to low income and moderate income families. Those financial impacts not only include lower returns on construction and development costs, but the added expense of implementing an affordable housing program as part of the project (unless the local government provides those services).  The inclusionary requirements will certainly reduce developer profit, but may also affect the financial viability of the project as a whole.

Chief Justice Cantil-Sakauye wrote for the Court that the conditions that the San Jose ordinance imposed upon future developments did not impose “exactions” upon the developer’s property so as to bring into play the unconstitutional conditions doctrine under the takings clauses of the federal or state constitutions. The conditions do not require the developer to pay money but place a limit on the way a developer may use its property, the court said. The ordinance serves legitimate government purposes of increasing the number of affordable housing units in the city and assuring that new affordable units are distributed throughout the city as part of a mixed-income development. Therefore, the court reasoned, the affordable housing ordinance is a zoning restriction, not a taking. The higher standard of court review applied to takings cases did not apply. Instead, the court could apply the much lower judicial review standard for zoning laws: such laws will be upheld so long as they have a reasonable relationship to a legitimate governmental interest.

CBIA’s lawsuit was a “facial” challenge to the City of San Jose’s ordinance, which argues that the ordinance was unlawful for essentially all reasonably conceivable projects. Another path to challenge the City of San Jose’s ordinance is still available. It is still possible for a developer to make the argument that the law, “as applied” to its particular project, is a taking. Under compelling facts, the California Supreme Court could find that “as applied” the law was confiscatory or an “unconstitutional condition” to the development of the project. However, such a lawsuit would be a risky endeavor given the Court’s prior holding.

In addition, CBIA could appeal the decision to the United States Supreme Court to review the California Supreme Court’s interpretation of federal takings law.  Strategically, it would probably be best for the CBIA to wait for a project with compelling facts in an “as-applied” challenge rather than using the facial attack. It could well be the case that the chances of prevailing would be higher in an “as-applied” challenge.  The risks of losing the case in another “facial” challenge and establishing national legal precedent similar the California Supreme Court’s holding would definitely not be welcomed by the development community.

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.