Sheppard Mullin Hosts CEQA Briefing: SB 226 Guildlines Now Under Review by Governor

Alfred, Sheppard Mullin recently hosted a breakfast briefing to update participants on the latest in CEQA developments. Christopher Calfee, Senior Counsel of the Governor’s Office of Planning and Research opened with a discussion of SB 226. Based on his presentation, could you comment on the significance of California’s SB 226 and its import for your development clients interested in expediting their projects?

Alfred Fraijo: From my standpoint, SB 226 and the related streamlining initiatives for infill projects proposed by both the Governor’s Office of Planning and Research and the Resources Agency is a step forward, at least in promoting infill development and beginning to think creatively about how we can facilitate development in urban areas around California. It seems to me that while we hope for CEQA reform from the Legislature in 2013, we can make some strides relative to implementation at the regulatory level with clear guidance on fast tracking infill projects.

Could you elaborate on the CEQA projects impacted by the evolution of a streamlining effort represented by SB 226?

First, the modifications to the guidelines have not been completed, and responses to comments have not been issued. However, based on the language that was circulated for comment, SB 266 has an opportunity to promote development around transit. The key issue here is that, in some respects, it really challenges local municipalities to begin to think aggressively about updating and being more comprehensive with their environmental reviews for transit-oriented development. Developers seeking to invest in urban areas can take benefit from comprehensive planning by local jurisdictions. Specifically, one of the things the guidelines will do in expediting these projects will be to allow projects to benefit from planning-level analysis completed by local agencies, relative to potential impacts due to population growth and development in key areas of their jurisdiction. 

I assume you are talking about Metro and its planning as the lead agency. Is that true?

It has to do with local lead agencies throughout the state, so not just Metro but cities and counties as well.

And are there examples of some of these jurisdictions that have moved along on this path?

We see some effort, at least in Los Angeles and other jurisdictions, to aggressively complete planning and zoning overlays that would take a step forward in analyzing the growth projections of the city overall and in having a larger discussion of where density would be appropriate as a way of promoting development and job creation, especially during this economic downturn. 

Give our readers an example of how a private sector developer might benefit by an agency completing planning and zoning overlays. 

This is a relatively new development and the rules are not final, so I don’t have an example of a project that will benefit from it just yet, but we do have a number of projects that would be considered infill projects in accordance with the new guidelines. To that extent, likely the only way that these projects can take benefit is by relying on a previously certified environmental document that has addressed the impacts associated with new development of urban infill projects. Alternatively, the local agency must have completed comprehensive plans—for example, general plan updates that mandate measures that protect the environment. Those measures can be oriented around reduction of parking, promotion of air quality, mobility elements that support alternative use of public transportation, or other intermodal opportunities for these infill projects. Again, these alternatives measures are dependent on whether local municipalities and agencies have implemented real, reliable measures to promote development. The challenge is that many of these local jurisdictions are cash-strapped or may be constrained by other priorities.  

Alfred, the Natural Resources Agency issued proposed guidelines and asked for comments by September 10th, 2012. Have you had a chance to review what came in in response to that request?

I haven’t reviewed all the comments to the Agency as they have not been published. 

Will there be a process for review by stakeholders?

The period for comment has closed, as indicated by Chris Calfee at today’s breakfast. Those comments will be considered by the Governor’s Office of Planning and Research and by the Natural Resources Agency as part of their finalizing the rules. My hope is that they will take into account the importance of adding greater clarity to the standard of review that would be required for projects that are not ultimately exempt from the CEQA analysis but perhaps require a more streamlined environmental impact report. 

The key here is, one, to incentivize developers to pursue infill development in areas where local jurisdictions have studied and deemed it appropriate. Two, the hope is the amendments will expand the opportunity for a wide variety of developers and greater development in urban areas by adding certainty to the CEQA review process and by making permitting of development less expensive in a time when cities and counties should be promoting growth. 

Is it fair to say that the SB 226 streamlining proposals apply to, as you say, infill projects defined as residential, retail, commercial, mixed-use, transit stations, schools, public office buildings, or previously developed urban sites, or vacant land at least 75 percent surrounded by urban uses. Is that the definition that you are assuming will be incorporated?

That is correct.

What’s left out of that definition?

Well, you would have larger industrial or light industrial projects, large warehouse projects, and potentially some distribution centers. I think it’s an open question whether the resource agency will expand the definition to include additional types of projects where appropriate. My hope is that if they don’t then we’ll begin to think about how such heavy job-creating industries might also take benefit from other meaningful CEQA reform efforts.

Let’s close with a question about the market reaction to SB 226 and the guidelines still not finally adopted. Are your clients interested in these incentives?

I would say that my clients are always interested in looking for opportunities where we can streamline and expedite permitting for important projects that bring jobs, housing, and other uses and amenities that are good for local communities, especially where they might be appropriate, like around transit corridors. These are things should be priorities, certainly in Southern California. This has been a priority for a number of cities, and I’m hoping that these measures by the state help facilitate that. 

The Sheppard Mullin breakfast branched out to other CEQA topics beyond SB 226. The following are excerpts from Alfred Fraijo’s morning remarks on recent court decisions influencing how developers analyze baseline and projected impacts during the EIR process. If SB 226 will concentrate development in transit-oriented areas through streamlining, then transit-impacts and projections become key tools for developers and communities in projecting how their neighborhoods will change and grow. Court decisions such as Smart Rails v. Exposition Metro Line Construction Authority, et al., along with small legislative actions, are changing how developers are working within the confines of CEQA instead of waiting for overarching reform. 

Alfred Fraijo: We are going to draw on major themes on CEQA case law that we think are relevant starting with the environmental baseline as it related to traffic analysis in an EIR. The issue here: how do you begin to assess impacts from baseline environmental conditions? Mainly, the baseline conditions are those physical and environmental conditions in the vicinity of the project as they exist at the time of the analysis. Generally, the mandate is that you study real conditions on the ground versus what should or could happen.

There seems to be a disconnect on how to gauge the baseline analysis especially when you pursue your traffic analysis in an EIR. There are two cases: the Sunnyvale case, which is relatively older, and the recent case concerning completion of the Exposition Line in Los Angeles. 

In the Sunnyvale case, the court found that you cannot only base your analysis on future projections. You can’t really begin to analyze project impacts, on traffic, for example, based on standard or local growth projections for the intersections of concern. Here the baseline was 2020 for future projections on traffic. The City of Sunnyvale wanted to look at what, ultimately, for this expansion of a roadway, would be the net impacts based on realistic projections regarding the completion of the project.  The reality is that most projects of this scale are not likely to be implemented immediately after approval or may be implemented over several years.   Thus, the rationale is, rather than assess the impacts on a baseline that is based on when the project is approved, let’s look at it realistically based on when the project will be completed. 

The City of Sunnyvale decided that 2020 was a reasonable horizon year for when the project would come on line. It analyzed the traffic conditions based on traffic projections for 2020 with the project and without the project. 

The court rejected the City’s approach. It determined that to be able project the 2020 impact, even on the basis of both regional growth calculations as well as the City’s own traffic modeling, was inappropriate and far too speculative. Many argued that it shifted the longstanding practice on how we should do the analysis. 

Most practitioners assumed that the ruling would require a departure from the standard practice of using projected future conditions. Prior to Sunnyvale, we had assumed that it was only realistic for us to really look at where the environmental conditions would be, at a minimum, when the project is approved. As you know, the preparation of an EIR takes a number of years, and you need to have a realistic gauge of what those impacts might be. You have to assume that the process will take several years and in the course of these years traffic patterns may change. That has some implications on the analysis, primarily adding additional steps in what you did. 

Why is this relevant? There was a more recent case in April of 2012 that involved the Exposition Line expansion, which wanted to take the line from Culver City to Santa Monica. In that case, the baseline year was 2030 for analyzing traffic and, as a consequence, air quality, GHG, noise, and the like. That, like the Sunnyvale case, was based on the City’s own traffic model as well as some regional data supported by regional population growth patterns. 

In April the appellate court basically rejected Sunnyvale and its progeny. It basically said that Sunnyvale and Madera, another case that affirmed Sunnyvale, were wrong on the issue of whether the lead agency has the discretion to adopt a baseline based on longer-term projections. They both cited to CBE v. South Coast Air Quality Management Dist., which was a case that really set the stage for these issues. 

In the CBE case there was petroleum refinery in the Bay Area, and the project there was to analyze the renovation and some expansion of four boilers. The boilers themselves operated below the level of capacity or maximum heat production, on a regular basis. In that EIR for the project in CBE factored a simultaneous maximum operation level for those boilers rather than the standard day routine operation. They compared the improvements to those boilers based on that maximum artificial level. 

The court disagreed with the approach. You can’t assume an artificial baseline based on that scenario that will likely never happen. Sunnyvale used CBE to show that you cannot use a hypothetical scenario. From that standpoint of the plaintiffs, CBE was a case where the EIR clearly pushed the envelope on future projections. But even in the CBE case the court concluded that it wasn’t a fast and hard rule. You could, for example, make reasonable assumptions on operations and look back to historic operation levels to determine the baseline. 

Neighbors for Smart Rails v. Exposition Metro Line Construction Authority, et al. really drew on the opening the CBE case provided. It’s only logical that you would assume that population is going to grow. The Exposition Line is going to happen over a number of years, if not decades.  According to the court, it is not realistic to think that we should use a 2009 baseline instead of a 2030 baseline. 

It really put to focus this notion that a community would not change over time – in this case by the fact that you have a major public benefit, the subway, running through the area. According to the court, change will happen; population growth will happen; and any city that wants to have a real analysis in terms of impacts may have to take those natural growth factors into account.

In that case, it obviously decided to rely on CBE, reject the rationale in Sunnyvale, and now the state Supreme Court has granted review of the Exposition Case. 

We are tracking the Supreme Court review because it should settle this apparent conflict between the appellate courts. Pending resolution by the Supreme Court, we need to be cautious of how we manage those two conflicting decisions. In LA we’ve taken the approach that we have to approach the analysis conservatively. That may result in multiple scenarios for analyzing potential traffic, air quality, GHG, and noise impacts. That has added additional work and expense with the EIRs that we are working on now. But it’s something that you really need to be thinking about. 

The interesting layer of complexity is when you have entitlements that through state law or local ordinance can last for a longer period of time, like in the context of a developer agreement. In that context the horizon year for completing your project, whether it is a phased project or the like, is likely to go through that end of the development agreement period. That is another additional scenario to consider in the context of your environmental baseline assumptions.